Hard-pressed families struggling to keep up with bills could face mortgage rates soaring to 2% within a year.
The forecast comes from Bank of England monetary policy committee hardliner Andrew Sentance, who has pushed for interest rates to rise for some months.
Sentance warns interest rates could hit 2% by next year – four times the current rate. Mortgage lenders would more than likely pass the full cost on to borrowers rather than opting to swallow the rise.
For a family paying £635 a month on a £150,000 tracker mortgage, repayments would rise by £115 to £750 a month
The warning comes as independent financial site unbiased.co.uk revealed 1-in-5 borrowers have no idea how interest rate rises would affect their monthly mortgage repayments.
In their survey of mortgage payers, huge numbers of borrowers were unclear about how interest rate changes affect their finances – and have no contingency plan for when rates rise.
Around 16% of borrowers on their lender’s standard variable rate and 18% of those on tracker mortgages believe their repayments would not go up by the full amount of any base rate increase.
Even fixed rate borrowers seemed clueless about rate changes – 1 in 20 (5%) wrongly believed their payments would change in line with any increase.
“The base rate increase is inevitable and when this happens homeowners need to ensure they are prepared for what this increase will mean for their personal finances. Those on tracker rates, standard variable rates and even fixed rates are in the dark about how their personal finances will be affected by this change, meaning it’s impossible for them to budget,” said Karen Barrett, unbiased.co.uk chief executive.
“It’s vital for homeowners to regularly review their mortgage arrangements to ensure that they are on the best deal for them.”
