The National Institute of Economic and Social Research has delivered a stark warning to consumers – just a 0.5% rise in the base rate of interest could add £500 a year onto mortgage payments.
Thousands of would-be home owners are taking advantage of record low mortgage rates to save money – but what’s going to happen when the Bank of England inevitably raises the base rate of interest?
New research by the National Institute of Economic and Social Research (NIESR) has found that just a 0.5% rise – taking the base rate to 1% – would add £516 a year on to a typical family’s mortgage repayments.
Overall, a 0.5% rise would cost UK households a massive £3 billion just next year.
Simon Kirby, an economist at NIESR, has warned that after two years of declining disposable incomes, any increase in the base rate would have a dangerous impact on household budgets.
“Wage growth has failed to keep up with an elevated rate of inflation and tax increases,” he said.
NIESR has also lowered its forecast for economic growth from 1.4% to 1.3% this year – significantly below the 1.7% the Treasury expects.
In keeping with this gloomy prediction, NIESR has said that on his current course, Chancellor George Osborne will fail to meet his targets for reducing the deficit.
The Bank of England’s Monetary Policy Committee is expected to leave rates unchanged at 0.5% when they close their latest meeting today.
Moneyhighstreet says: “If you have a mortgage, it’s never too soon to start bracing for financial pain down the line – and many families will need to in order to absorb the dent in their disposable incomes.
“Whether you’re buying a new mortgage or you’re looking at a remortgage, these figures are yet another reason to take advantage of the latest two- and five-year fixed rate mortgages from lenders such as Yorkshire Building Society and Barclays.
“Those who are on standard variable rate and tracker mortgages will feel the effect soonest while those already with a fixed-rate mortgage will be able to predict their repayments for longer – a boon if mortgage payments are a concern.”