With the Bank of England Monetary Policy Committee confirming its base rate will rise by 0.5% to 1.75%, research from international audit, tax and advisory firm Mazars shows UK households face an immediate increase in interest payments of £1.67bn.
Analysis of Bank of England data by Mazars shows UK households are currently paying £24.1 billion annually in interest payments on floating rate debt that are likely to be immediately impacted by an interest rate rise. With rates rising by 0.5%, that means annual interest payments will increase to £25.7bn straight away.
These debts include floating-rate mortgages, credit card debt, overdrafts and other unsecured personal lending. Further increases in the base rate would have a yet more dramatic impact. If interest rates were to rise to 3%, household interest payments would rise by a further £5bn to £29.9bn.
Mazars explains that the majority of the rise in interest payments will be driven by floating rate mortgages. UK borrowers currently have £249.9 billion of floating-rate mortgages secured against their homes, at an average interest rate of 3.21%. 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.
Ed Thomas, Director at Mazars, said “This rate rise is going to add billions more to UK households’ costs – and it’s going to happen almost overnight. People are already struggling with a huge burden of everyday costs on food, fuel and energy. Unfortunately, they will have to add a significant jump in the cost of their mortgages and other debt to their worries.”
“It’s likely that we’re going to start to see more personal insolvencies in the coming weeks and months as people simply become unable to service their debts alongside all those other costs.”