Households will pay £858m more in interest after rate rise

Analysis of Bank of England data by Mazars shows UK households are currently paying £18.3 billion annually in interest payments on floating rate debt that are likely to be immediately impacted by an interest rate rise.

Thi 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. With rates rising by just 0.25%, 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%, household interest payments would rise by a further £4.3bn to an eye-watering £22.6 billion.

Commernting in the research Paul Rouse, Partner at Mazars, said “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.”

“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.”

Mazars explains that the majority of the rise in interest payments would be driven by floating rate mortgages. UK borrowers currently have £267 billion of floating-rate mortgages secured against their homes, at an average interest rate of 2.71%. Mazars says 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.

Rouse added “With just  17% 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.”