A new report from Barclays Mortgages produced in partnership with the Centre for Economics and Business Research (Cebr) has analysed mortgage affordability across the UK in 2015.
The report reveals:
- 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 for Economics and Business Research (Cebr) predicting a minimum total mortgage payment rise of £723.8 million across the UK
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 for Economics and 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.
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.
To access the full release via the Barclays website, click here.