According to Hargreaves Lansdown, which surveyed around 2,000 people, if the interest rate hits 1.25 per cent, then those on variable rate mortgages could pay £88 more a month. It added that at a 1.5 per cent base rate monthly payments could rise by £132.
The estimates are based on a £300,000 repayment mortgage over 25 years with all the rate rises passed on and an average standard variable rate of 4.71 per cent.
The report said that monthly payments for an average two-year tracker for the same loan and time period could go up by £38 this month, £75 at 1.25 per cent, and £114 at 1.5 per cent.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that the rate rises might look “relatively harmless” but as many people’s finances were on a “knife edge” they risked being forced into financial difficulty.
‘Possible’ two thirds of borrowers could struggle financially
Coles pointed to another survey on mortgage payments Hargreaves had conducted which showed 10 per cent of people said a rise of £50 would put them under financial pressure. This rolled out to a third of respondents at £100 a month, and two thirds said they would struggle under a £200 a month increase.
“Unfortunately, rises of this size are possible,” she said.
She added that whilst those on fixed rate mortgages were “protected for now”, around 1.5 million people’s terms expired this year, and as mortgage pricing is increasing, a third might struggle with the extra cost.
The report said that someone remortgaging at the end of a two-year fixed rate could see payments rise by £61 a month.
If interest rates rose another 0.25 per cent this could hike payments by £97 and a 0.5 per cent hike could add £134 to monthly mortgage bills.
This was based on a comparison of a £300,000 mortgage on an average rate in March 2020 of 2.29 per cent, then remortgaged at an average rate of 2.72 per cent.