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Interest rate rise 'to hit mortgage repayments'

07 August 2006
The Bank of England's decision to raise interest rates will adversely affect many homeowners' monthly finances, according to Moneyfacts..

As a result of the 0.25 percentage point rise, consumers with a variable rate mortgage or unsecured debt will feel their disposable income tighten.

The financial advice website estimates that for every quarter point rise, an average mortgage of £150,000 will see monthly payments increase by £21, a rise of over £6,000 for a 25-year term.

Lisa Taylor from Moneyfacts said of the bank's decision: "Recent economic signs do not paint a very rosy picture for UK consumers, with rising bad debts, unemployment levels, unsecured debt levels at an all time high and predictions of a further [interest] rate increase before the end of 2006.

"Many consumers are managing their personal finances by means of an intricate balancing act, with demands for their income pulling it in every which way," she added.

Mortgage customers with a fixed-rate deal will not suffer from the rate rise, though the interest charged on new fixed rate mortgages has risen steadily in the last few months.

The negative picture was only exacerbated today when the DTI released statistics showing a record 26,000 people became insolvent in the second quarter of this year.

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