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Categorized | Property

Homeowners could end up paying £2bn more if the bank rate rises

Posted on February 28, 2014

File photo dated 08/08/12 of the Bank of England. Inflation is set to dip below the Bank of England's 2% target for the first time in more than four years, thanks to retailers slashing prices and lower fuel costs. PRESS ASSOCIATION Photo. Issue date: Tuesday February 18, 2014. Many economists believe official figures today will reveal a fall in the Consumer Prices Index (CPI) to 1.9% last month from 2% in December, which will mark the first time inflation has dropped below the target since November 2009. See PA story ECONOMY Inflation. Photo credit should read: Yui Mok/PA Wire©PA

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.

    AudioMortgage rates, investing in biotech, and with-profits

    When mortgage rates rise, how bad will it be? Jonathan Eley and guests also discuss whether the UK biotech sector is set for a boom, and whether with-profits policies are worth retaining

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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.