The research by financial markets insurance specialist MarketGuard was conducted among those who hold a variable or tracker rate mortgage. It reveals that two thirds admit they are worried about the prospect of an interest rate rise in 2011/2012.
If rates were to rise, 900,000 UK mortgage holders say they would find it a struggle to pay an extra £50 a month on their monthly mortgage repayments. If their mortgage repayments increased by £200 (the equivalent of an interest rate rise of 2% for an interest only mortgage), this figure jumps to 4.8 million people – 66% of all mortgage holders.
Chris Taylor, CEO of MarketGuard commented: “This research reveals just how vulnerable the British public is right now to a rise in interest rates. It is clear that we face a major problem if rates start to move dramatically upwards in response to inflationary pressure.”
When asked, 60% would consider switching to a fixed rate to limit their monthly payments, but both the CML and FSA have found that many customers are being excluded from remortgaging and finding it difficult to switch because they are on a self cert, high LTV, credit impaired, or interest only mortgage.
Taylor continued: “Fixed rate deals are popular because people need the certainty of knowing that their repayments won’t increase if rates rise. However there are many mortgage holders in the UK who are unable to find a suitable fixed rate deal. This, coupled with the fact that 2.7 million will struggle if they have to find over £100 a month extra to pay on their mortgage, means these people are at the mercy of the financial markets.
“One way to get around this is to cap their interest rate repayments. RateGuard, for example, works like a fixed rate mortgage by ensuring mortgage holders on variable or tracker mortgages can cap their exposure to interest rate rises. Therefore they are limiting their repayment exposure to any unaffordable financial market risk.”
MarketGuard’s Rateguard allows mortgage holders to protect themselves from the effects of interest rate rises for a monthly insurance premium, typically £30 a month for 24 months’ cover based on a repayment mortgage of £100,000 with an excess of 1%.
