Thanks, Bank of England: Households will pay £858m more in interest after yesterday’s rate rise
With the Bank of England Monetary Policy Committee confirming yesterday that its base rate will rise by 0.25 per cent to 1 per cent, UK households face an immediate increase in interest payments of around £858m.
Analysis of Bank of England data shows UK households are currently paying £18.3bn annually in interest payments on floating rate debt that are likely to be immediately impacted by an interest rate rise.
This includes floating-rate mortgages, credit card debt and other unsecured personal lending. Consumers will be hit by further rises as fixed rate debt is converted to floating rate, according to the research by audit and tax firm Mazars, shared with City PM this afternoon.
With rates rising by just 0.25 per cent, annual interest payments would increase to £19.2bn almost overnight.
Further increases in the base rate would have a yet more dramatic impact. If interest rates were to rise to 2 per cent, household interest payments would rise by a further £4.3bn to an eye-watering £22.6bn.
“UK households are now burdened by a huge amount of debt. Even a modest rise in the bank rate adds hundreds of millions of pounds to repayments almost immediately,” explained Paul Rouse, Partner at Mazars.
Rouse told City PM that “it is important that UK households are prepared for the impact of interest rate rises on their budgets. With spiralling energy bills and food costs already becoming unmanageable for a growing number of families, the last thing they need is for their debts to become more expensive.”
Mortgage holders
The majority of the rise in interest payments would be driven by floating rate mortgages.
UK borrowers currently have £267bn of floating-rate mortgages secured against their homes, at an average interest rate of 2.71 per cent.
Rouse pointed out that the amount to be paid would be even higher were it not for a wave of borrowers switching from floating to fixed rate mortgages in recent months.
“With just 17 per cent of mortgage debt now on a floating rate, most UK borrowers are insulated from a rise in interest rates until their mortgage fixes expire. However they are likely to feel the pain the next time they come to remortgage,” Rouse concluded.