Research conducted by YouGov for Equifax found that 78% of homeowners on a variable interest rate mortgage are not budgeting for increased payments, despite 80% expecting an interest rate increase within 12 months.
The online survey of 2,065 adults revealed that more than a quarter (28%) of respondents were unaware of how much their monthly payments would be if interest rates rise by 0.5%.
The latest indication that interest rates will increase within the next few months were made in a speech by Bank of England governor Mark Carney, who said that sustained momentum in the UK economy would likely put the decision on raising interest rates ‘around the turn of this year’.
Equifax’s research showed that the looming rate rise threatened to put additional pressure on household expendable income, as 27% of homeowners said they would need to cut back on grocery shopping in order to keep up with mortgage payments, should interest rates rise.
A further 41% of respondents said they would be forced to cut back on going out, while almost a third (32%) said they would need to cut back on their holidays. Just 6% said they would cut back on pension contributions.
Jake Ranson, banking and financial institutions director, Equifax UK & Ireland said: “The low interest rate environment has created a false sense of security among many homeowners, particularly for those who have taken out their first mortgage in recent years. Homeowners have had time to get their house in order, yet the research shows a high proportion of homeowners will get a nasty shock once rates rise.
“A bump of 0.5% can have a significant effect on mortgage repayments, forcing unprepared homeowners to seriously rethink their spending habits. There is also a risk of falling into arrears. This research highlights that although many anticipate a rate change, some borrowers are not being realistic about the impact this can have.”