- Almost half (46 per cent) of homeowners aren’t able to recall what the current Bank of England base rate is
- Nine in ten (88 per cent) are completely unaware of the Bank of England’s recent interest rate forecast
- Half of homeowners with variable rate mortgages aren’t aware that their repayments could rise next year
- Over three quarters (76 per cent) aren’t putting money aside for interest rate increases, despite the Centre of Economic Business (Cebr) predicting a minimum total mortgage payment rise of £723.8 million across the UK1
LONDON, 07-1-2015 — /EuropaWire/ — Whilst January is traditionally the time to get finances in order and plan for the year ahead, new research reveals that there is widespread confusion around UK interest rates with six out of ten (61 per cent) homeowners uncertain when they might rise.
According to research from Barclays Mortgages produced in partnership with the Centre of Economic Business Research (Cebr), homeowners cite different political and regulatory statements, conflicting family views and changing market commentary as the main reasons behind this widespread uncertainty.
In fact, almost half (46 per cent) weren’t able to correctly recall the UK’s current base interest rate and only 12 per cent were aware of a recent Bank of England announcement forecasting mortgage rates will rise in October 20152.
The real impact going forward: The importance of reviewing mortgages now
This lack of awareness may contribute to UK mortgage holders experiencing financial difficulties in 2015. Just under half (49.5 per cent) of those with a variable rate mortgage don’t expect or aren’t sure that their mortgage repayments will rise in 2015, despite the Cebr predicting that homeowners across the UK could face a potential £1.1 billion total increase in mortgage repayments by the end of 2015.
This is based on the Cebr’s ‘sharp but potential’ model suggesting three rate rises in 2015 (taking base rate to 1.25 percent by December 2015), something which is not considered unfeasible by economic experts and which would increase average mortgage repayments for individuals by £118.974.
The second ‘medium’ model focused on a single interest rate rise of 0.25 per cent in May 2015 and would see homeowners across the UK paying an additional total of £904.2 million in their mortgage repayments by the end of 2015 averaging at £101.33 per homeowner4.
At a very minimum the Cebr predicts an average annual £81.12 increase in mortgage payments for individuals by the end of 2015. When looking at the UK as a whole, this ‘gentle model’ would result in a total £723.8 million annual increase in repayments5.
Whatever the increase in repayments, it is clear that as a nation we are underprepared for any interest rate rise with over three quarters (76 per cent) surveyed admitting to not putting aside money for any potential mortgage rate increases6.
The survey also found almost half (45 percent) of UK homeowners felt they may have missed out on better mortgage rates and therefore paid out more because they weren’t sure whether or not to fix or change their mortgage.
Andy Gray, Barclays Managing Director of Mortgages said: “Our report shows there is widespread confusion over interest rates and we encourage homeowners to review their current situation and get advice on what their next mortgage step should be. We want our customers to remain financially fit in the face of potential interest rate rises in 2015, and believe the impending rise that the Cebr has modelled shows some homeowners may be caught unaware by unexpected increased repayments.”
Regional variations and groups who are most sensitive to rate rises [using Cebr’s gentle model]
Those between the ages of 30 and 49 face the largest hike in mortgage repayments, with a potential £362.1 million increase in total mortgage repayments. Regionally, those in South East can expect the biggest rise in payments with a total of £158.9m, despite over three quarters of homeowners (77 per cent) admitting to not putting money aside as a financial buffer to cope with potential rate rises.
Scots are least likely to put money aside for potential interest rate rises, with only one in ten (10 per cent) saving for their mortgage repayments going up. Welsh homeowners are most likely to save, with a third putting aside money even though their potential mortgage increases not being as large as other areas in the UK.
Interestingly, Londoners are the ‘best off’ in the UK, with the Cebr predicting the capital’s homeowners can expect a reduction of £20 on average per person on their mortgage repayments by the end of next year7. However, when taking the region as a whole, total mortgage repayments increase by £124 million as the number of mortgage paying households in the capital increase.
Whilst confusion over mortgage rates is wide spread throughout the UK, homeowners in the West Midlands are most uncertain with two thirds (67 per cent) having no idea of when the base rate will go up, whilst those in the South West are most savvy, with just under half (45 per cent) aware of Mark Carney’s current interest rate announcements.
Andy Gray, Barclays Managing Director of Mortgages said: “If predictions are accurate, across the country interest rate rises in 2015 will be a reality and the impact could stretch families who already feel financially squeezed. So we are working closely with StepChange Debt Charity to address concerns our customers may have over rising interest rates and the effect this may have on their mortgage repayments and wider household finances.”
Mike O’Connor, Chief Executive for StepChange Debt Charity said: “Many families’ finances are on the edge and even a small rise in interest rates could have a serious impact. People need to take action now and make sure that whenever those higher repayments come, the end result isn’t a downward slide into problem debt.”
Top tips for preparing yourself against potential mortgage increases from StepChange Debt Charity can be found below:
In any situation, the most important step to preparing your household finances is to have a detailed household budget in place. Make sure you know exactly how much you have coming in and going out, then make sure that you cover your essential household bills first e.g. mortgage, energy bills, council tax. For a full list of these ‘priority’ bills, and advice on drawing up a household budget, visit our budgeting pages.
Use a mortgage calculator
Once you’ve got your budget in place, use an online mortgage calculator to help you work out how much extra you will have to pay when interest rates go up. Once you know the additional amounts you can factor these into your household budget, so that you are well prepared.
Can you cut back?
Identify areas of your household budget that you might be able to cut back on. There are many ways to reduce your spending that can make a substantial difference to your outgoings. Comparison sites and utility switching services will help you find out if there are cheaper deals on everything from your energy bills to your telephone and TV deal. This may give you that extra room needed in your budget.
If you’re paying a lot of your income to other debts such as credit cards, overdrafts, personal loans or payday loans, see if you can reduce these payments. Use our online Debt Remedy tool to find out what options you have to deal with your debts.
Change your mortgage
Investigate whether you have got any options to change your mortgage and get onto a better deal. Your bank or a mortgage broker will be able to advise you.
Speak to your lender
If you’re worried about the potential impact of interest rises and are unsure as to whether you will be able to cope speak to your lender to see what options may be available. It may be that they are able to offer different payment arrangements, or a different mortgage. It is important not to ignore the problem until it’s too late.
Table 1: Annual mortgage repayments by region for average mortgage holders (£ per year)
|Yorks & Humber||£7,056.40||+£53.44||+£73.21||+£90.51|
Table 2: Total annual mortgage repayments by region for mortgage holders (£ million per year)
|UK||£73,584m||£75,038m (+£1,454m)||£75,219m (+£1,635m)||£75,376m (+£1,792m)|
|South East||£12,075m||£12,353m (+£278m)||£12,381m (+£306m)||£12,406m (+£331m)|
|North West||£7,467m||£7,664m (+£197m)||£7,678m (+£211m)||£7,691m (+£224m)|
|East||£7,407m||£7,569m (+£162m)||£7,590m (+£183m)||£7,609m (+£202m)|
|South West||£6,301m||£6,446m (+£145m)||£6,457m (+£156m)||£6,467m (+£166m)|
|London||£14,836m||£14,960m (+£124m)||£14,982m (+£146m)||£15,001m (+£165m)|
|East Midlands||£4,471m||£4,579m (+£108m)||£4,591m (+£120m)||£4,601m (+£130m)|
|Yorks & Humber||£5,357m||£5,450m (+£93m)||£5,465m (+£108m)||£5,478m (+£121m)|
|Scotland||£5,378m||£5,452m (+£74m)||£5,469m (+£91m)||£5,483m (+£105m)|
|West Midlands||£5,296m||£5,365m (+£69m)||£5,387m (+£91m)||£5,406m (+£110m)|
|North East||£2,334m||£2,390m (+£56m)||£2,397m (+£63m)||£2,402m (+£68m)|
|Wales||£2,760m||£2,815m (+£55m)||£2,822m (+£62m)||£2,829m (+£69m)|
|Northern Ireland||£1,855m||£1,883m (+£28m)||£1,886m (+£31m)||£1,888m (+£33m)|
For further information on Barclays and the Barclays range of mortgages go to Barclays.co.uk/remortgage.
House hunters can download the Barclays Homeowner app to find a dream home, calculate borrowing and for direct access to estate agents and mortgage specialists
Notes to editors
1 The Cebr based this on the difference between the latest annual mortgage repayments figures and the predicted figures annual in Dec 2015. All figures throughout the report were calculated using the latest ONS Family Expenditure Survey (FES), Cebr’s in-house economic models and the Bank of England’s NMG Survey
2 According to a poll of 2,000 UK homeowners conducted by OnePoll
3 According to a poll of 1,000 UK homeowners with a variable rate mortgage conducted by OnePoll
4 Sharp interest rate rise scenario II (Three hikes in 2015, three in 2016: first rise to 0.75% in May 2015, then to 1% in Aug 2015, to 1.25% in Nov 2015, to 1.5% in May 2016, to 1.75% in Aug 2016, and to 2.0% in Nov 2016)
5 Medium interest rate rise scenario (one rise to 0.75% in May 2015)
6 Gentle interest rate rise scenario (one rise to 0.75% in Nov 2015) (Cebr’s most likely scenario)
7 The expected decrease in London house prices over 2015, combined with current low interest rates, will translate into a slight decrease in the average mortgage payments for home owners in the capital. Further, mortgage payments as a share of disposable income will also decrease
About the Cebr
Cebr was founded by Professor Douglas McWilliams, the former Chief Economic Adviser of the CBI and Chief Economist at IBM UK. Cebr delivers microeconomic analysis and forecasts to a wide array of retained private and public sector clients, and provides bespoke economic impact analysis of different policies and regulations at whole economy, sector and individual company levels.
Barclays is an international financial services provider engaged in personal banking, credit cards, corporate and investment banking and wealth management with an extensive presence in Europe, the Americas, Africa and Asia. Barclays’ purpose is to help people achieve their ambitions – in the right way.With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 135,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide.For further information about Barclays, please visit our website www.barclays.com.