Three quarters of UK mortgage holders are not aware of the impact that interest rate hikes will have on their mortgage repayments, according to a recent survey.
The Government has increased interest rates five times since last August which means borrowers who took out low fixed rate mortgages over the last three years are facing repayments that could rocket by up to 40%.
The worst hit will be those who were able to snap up bargain fixed interest rates mortgages two years ago at around 4.35% but in today’s climate, a new deal set at the standard variable rate is likely to be around 7.75%. Currently, the average best fixed rate deal is around 5.9% which means an increased repayment amount of £134.
However, despite the gloomy statistics, the latest Personal Credit Index survey from CreditExpert.co.uk has found that 70 percent of mortgage policy holders are blissfully unaware of the amounts they may now have to repay.
When asked what effect a 0.5 per cent interest rate rise would have on monthly payments for a £100,000 interest-only mortgage, seven in ten answered incorrectly. While the correct answer is £40, almost a fifth thought they would have to fork out an £80 or more and 17 percent said they thought they would need to find an extra £10 maximum.
Jim Hodgkins, Managing Director of CreditExpert.co.uk comments: “Although the current Personal Credit Index shows that people generally are more confident than in the last quarter, the lack of understanding of key terms and the effect of interest rate changes is worrying. It’s important for people to be familiar with standard financial terms and stay on top of changes that affect their personal finances so they can make the best possible decisions and choices.”
The figures also revealed that almost eight in ten mortgage holders do not know what annual percentage rate, or APR, is, with 44 percent thinking it is only the interest rate of a loan and a sixth (15 percent) stating it is the amount of a loan paid back in a year.
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