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Bank Base Rate - Effects of an Increase

How would a base rate rise affect you? Could you maintain your current lifestyle? Lisa Taylor from moneyfacts.co.uk comments on the effects a base rate rise would have on many consumers, especially those who have borrowed to the max and don’t have the comfort of a fixed rate mortgage.

“Recent economic signs do not paint a very rosy picture for UK consumers, with rising bad debts, unemployment levels, unsecured debt levels at a all time high and prediction of a rate increase later in the year. You may think that consumers and lenders would be taking a more cautious approach.

“But in some instances this is not the case, Moneyfacts has seen that lenders are increasing income multiples, launching increasingly competitive products, and as a result, some consumers are taking the maximum levels of borrowing available to them as they consider it to be currently within their means.

“But what would happen if rates were to take an upward step?

“Many consumers are managing their personal finances by means of an intricate balancing act, with demands for their income pulling it in every which way. In the ‘live for today’ society, there are also the worries of funding future pension provision, as well as the financial headache caused by the much-publicised rising utility costs to consider.

“The following table highlights the impact of a rate increase has on a consumer’s mortgage payment. Assuming a current mortgage tracker rate of 4.5%, a rise of just 2% would increase the original payment on an average mortgage of £150K over 25 years by over 20 per cent.

“Assuming a combined salary of £50K, this rise would relieve the consumer of a further 6% of their annual disposable income – or to put it another way, almost £190 extra a month. Combine this with the rising utility costs, council tax, fuel and taxes, it would not be long before many more people could find themselves facing potential financial hardship.”