UK homeowners face a £2.2bn increase in mortgage repayments by December 2015 if the Bank of England raises interest rates, according to a report by Barclays Mortgages.
The increase is based on the bank rate rising three times to 1.25 per cent, which economists consider the most likely scenario.
This is expected to mean that the average household would pay an extra 3 per cent on mortgage repayments, costing families £252 more a year.
However the report, based on data from the Centre for Economic and Business Research, said UK borrowers could pay as much as £5bn more by the end of 2015 in the most extreme scenario.
This “drastic but potential” situation assumes there are five rate rises between now and the end of 2015, taking the bank rate to 1.75 per cent.
Andy Gray, managing director of mortgages at Barclays, said: “The overarching insight is that rates will rise in the medium term and so mortgage customers should be aware of the impact of any rises on their finances and review their mortgage arrangements accordingly.”
Increasing rates could leave many homeowners at risk of falling behind on repayments.
The Financial Conduct Authority last week published a report into mortgage lenders’ arrears management, asking them to identify customers who could fall behind on repayments if interest rates rise and have strategies in place to treat them fairly.
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Yorkshire Building Society said earlier in the month that it will refund £8.4m to 33,900 customers in arrears, as many were incorrectly charged fees for falling behind on repayments.