The Bank of England's Monetary Policy Committee is expected to hold base rate at 0.5% tomorrow, marking 18 months of no change. But interest rates will have to start rising at some point.
When rates eventually rise, the effect on consumers' finances could be catastrophic for many borrowers. Over a quarter of people surveyed (27%) admitted to being worried about an increase in the base rate affecting their mortgage repayments and clearly this could affect a large number of households.
For example, someone sitting on an interest only mortgage of £150,000 on a 2.5% SVR would currently pay £312.50 per month in repayments. Should the base rate rise by 1%, their repayments would jump by £125 per month to £437.50.
However, if Base Rate rose to 5% - the level it was in October 2008 before it plummeted - the SVR could be 7% and this figure jumps to a staggering £875, over £562.50 extra per month.
Kevin Mountford, head of banking at moneysupermarket.com said: "Low interest rates have been fantastic for a large proportion of UK homeowners and subsequently many people have become used to more disposable income each month. However, a base rate rise will push up mortgage rates forcing many families to reign in their spending - potentially causing financial problems for many.
"As the poll shows, homeowners are clearly worried about the negative effects of a base rate rise. Whilst it is expected that the base rate will creep up slowly, consumers need to understand the effect this will have on their finances and plan accordingly. Anyone sitting on their lenders SVR should consider fixing now before rates begin to rise.”
