As anticipated, the Bank of England announced that interest rates will increase by 0.25% to 5% - the highest level in five years. Households now face higher mortgage repayments.
Following the last interest rate rise on 3 August, Equifax conducted a snapshot survey which revealed that 44% of respondents expected the interest rate rise to affect their ability to repay their existing debts.
“The fact that consumers think the interest rate rise will immediately affect their ability to repay existing debts is particularly worrying in the light of recent Bank warnings on levels of consumer debt”, confirmed Neil Munroe, external affairs director, Equifax. “However, what is equally worrying is the fact that 35% of respondents say it will have an impact on their longer term plans for home buying and 31% say it will affect plans for home improvements.
“The goal of the interest rate increase is to slow down inflation levels, but the reaction from Equifax customers that it will affect their ability to repay debts should send warning signals to lenders, as well as the government.”
First time buyer Kim Shillaker was concerned to hear about the rise in interest rates. She is currently waiting for contracts to be exchanged on her first purchase and has taken out a tracker mortgage meaning her monthly payments go up or down according to the Bank of England base rate.
Kim says: “It was hard enough saving for a deposit for a property in South West London. But this interest rate rise is a bit of a knock back financially as our monthly mortgage payment will be higher than we planned. And that’s even before we move in.”
Claire Foster from Surrey was frustrated to hear the rates had gone up again. She has been on the property ladder since 2004 but her fixed rate came to an end in May 2006.
Claire says: “My mortgage repayments at the beginning of this year were £700, this month it is over £760. Since my fixed rate finished my variable rate has gone up and up.”
