An interest rate rise of just 0.5 per cent would deliver a “rude awakening” to many mortgaged homeowners, according to accountancy firm Moore Stephens.
Moore Stephens says that Bank of England data shows UK households are currently paying £39.2bn in interest on debt that is likely to be affected immediately by an interest rate rise.
If interest rates rose to 0.75 per cent from their current all-time low of 0.25 per cent, that figure would jump to £42.6bn.
The accountancy firm says the main driver will be variable rate mortgages. It adds that UK borrowers currently have £591bn of this type of loan at an average rate of 4.23 per cent.
Moore Stephens partner Michael Finch says: “There are a huge number of families with floating-rate mortgages who may get a very rude awakening on affordability once rates start to return towards what has historically been their normal level.
“There is a very real risk that a lot of people who have stretched themselves to afford a home will find themselves unable to keep up repayments when their 4 per cent mortgage rate becomes 5 per cent, 6 per cent or 7 per cent.
“That will get even worse as more and more fixed rate mortgages come to an end, and homeowners are forced to come to terms with higher interest rates.”
But a 0.5 per cent base rate rise would also have a knock-on impact on consumer debt.
Moore Stephens says households would immediately pay an extra £440m in interest on their credit card debt, overdrafts, car loans and unsecured personal loans.
