Households hit by £ 1bn in repayments if interest rates rise 0.25%
UK households would be hit by an “immediate increase” in interest payments of £ 976million if interest rates rose by just 0.25%, according to the international audit, tax and law firm. Mazars advice.
Mazars’ analysis of Bank of England data shows UK households currently pay £ 17.2 billion a year in (floating rate) interest payments which are likely to be ‘immediately affected’ by rising interest rates, including on variable rate mortgages, credit card debt and other personal loans.
The Bank of England’s base rate is currently 0.1%. According to Mazars, if rates were to increase by just 0.25%, those annual interest payments would rise to £ 18.2 billion almost overnight.
The group also said further increases in the base rate would have an “even more dramatic impact.”
If interest rates were to rise 0.5%, household interest payments would rise by an additional £ 1bn to £ 19.2bn, the company noted.
The group also said the majority of the rise in interest payments would be due to variable rate mortgages. UK borrowers currently have £ 325 billion in adjustable rate mortgages secured against their homes, at an average interest rate of 2.29%.
Mazars said that while the Bank of England has focused on keeping the cost of borrowing low during the pandemic, that “may have to change if inflation continues to rise.”
Paul Rouse, partner at Mazars, said: “While the Bank of England is unlikely to raise short-term interest rates, if inflation continues at its current rate, there could be no d ‘no choice but to do it. “
“UK households need to be aware of the potential consequences of rising interest rates on their finances if inflation forces the Bank to change course.”