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Homeowners brace for expected base rate rise

One in 20 on variable deals would struggle to make ends meet

Homeowners brace for expected base rate rise

A base rate increase in November would significantly affect one in 20 mortgage holders on variable deals, according to new Which? research.

Expectations are rising that the Bank of England will increase the base rate next month. We spoke to 2,101 homeowners and found that, while the vast majority could absorb a base rate increase of 0.25%, a handful would struggle to make ends meet.

Our data also shows that four in ten mortgage holders have been homeowners for 10 years or less – meaning they’ve never previously experienced the effect of an increase in the base rate.


Base rate could increase next week

In September, the Bank of England governor Mark Carney said the prospect of a rise in the base rate in the coming months had ‘definitely increased’.

The bank’s Monetary Policy Committee conducts its next vote on whether it should be increased on 31 October, with an announcement to follow at midday on 1 November.

The rate, which affects a host of financial products including mortgage and savings rates, has been set at an historic low of 0.25% since August last year.

Homeowners worried by prospect of further rises

While 5% of people on variable deals said they would struggle to make ends meet, a further 25% said a 0.25% rate increase would have ‘a bit of an impact’ on them.

Homeowners on variable deals are more concerned about the prospect of further rises in the future.

More than half (52%) of people we surveyed said a 0.75% increase would impact on their day-to-day lives, and more than three quarters (78%) felt a 2% rise could have a significant effect on their finances.

Will a base rate increase make my mortgage more expensive?

You can use our calculator below to find out how much effect a base rate increase could have on your mortgage repayments.

One in four have a variable rate mortgage

Nearly six in ten (59%) people we spoke to had fixed-rate mortgages, and just a quarter (25%) said they were on a variable rate deal, such as a tracker or discount mortgage.

Fixed-rate mortgages offer protection against base rate increases for their introductory term, and over a quarter (28%) of respondents had two or more years remaining on their deal.

Not everyone enjoyed long-term rate security, however, with a third (35%) of people telling Which? they have two years or less remaining on their fixed-rate deal.

Newer homeowners face uncharted territory

Four in ten mortgage holders (42%) have been homeowners for ten years or less, meaning they won’t previously have experienced a base rate rise.

Harry Rose, editor of Which? Money magazine said: ‘With one in 20 variable or tracker mortgage holders saying they would struggle to make ends meet, it’s important that preparation to deal with the impact of a hike starts now’.

‘Planning ahead with an effective budget is one simple way to stay on top of your finances as your situation changes. For those concerned about facing financial difficulty – speak to your bank and seek urgent advice. Plan now to avoid being caught out.’

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