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56% of UK homeowners have no plan if interest rates increase


Bank of England Governor Mark Carney

Bank of England Governor Mark Carney

Bank of England Governor Mark Carney

More than half of UK mortgage holders have not planned how they will pay for an increase in repayments when interest rates rise.

The base rate is at a record low of 0.5%, but Bank of England governor Mark Carney is expected to increase it in early 2015.

Research from the Money Advice Service (MAS) found 56% of homeowners had no plans for how they will cover the extra cost after the hike.

And 20% admitted they would struggle with the increase.

A leap in the base rate is firmly on the horizon, with two members of the Bank of England's Monetary Policy Committee already calling for a rise to 0.75%.

If it was to rise to that level, a homeowner with a 25-year, £100,000 mortgage on a 3.22% rate would have to pay an extra £168 a year, according to Council of Mortgage Lenders.

Most (84%) of those asked said an increase in interest rates would impact on their finances.

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And just under 70% of mortgage holders said they were already financially stretched. Worringly, this rose to 77% among people younger than 35.

Nick Hill, money expert at MAS, said: "Mortgage holders need to be more mindful of the fact that a rise in interest rates is widely predicted.

"The smallest increase in mortgage repayments can make a significant impact on a family budget, especially for people who are already stretched."

Mr Hill recommended mortgage holders review their finances, start looking at where they can cut back and plan ahead.

To cover a rise, more than half admitted they would need to cut back on day-to-day basics, and more than a third said they would have to dip into their savings.

In Northern Ireland, the housing market is continuing to improve, with house prices rising by 10.2% in September year-on-year, although they are still 50% under their 2007 peak, according to Nationwide.

The average house is £119,782 – an increase of 2.9% in the last three months to September – making Northern Ireland the second fastest growing region in the UK, with only East Anglia rising faster than it.

The amount the Government has received in stamp duty, meanwhile, has increased by more than £1.5bn in 2013/14 to £6.45m, according to HM Revenue and Customs data.

Of the total revenue, Northern Ireland made up only 0.3%, with England contributing 95%, Scotland 3.3%, and Wales 1.4%.