Barclays Mortgages and the Centre for Economic and Business Research (CEBR) have predicted that a rise in rates to 1.25% by the end of next year would see gross mortgage repayments rise from £69.2 billion to £71.4 billion.
A 0.75% increase to the base rate would result in an increase in mortgage repayments of around 3%, which would add £252 per year to the average mortgage, the report said.
Londoners would be worst hit by the increase, it found, where average mortgage repayments would rise by £384 per year, while those in the North East and Wales would suffer the lowest increases, at £180.
Were the Bank of England to increase rates more rapidly, to 1.75% by the end of 2015, repayments would increase by a further £5 billion, the report said.
|London||£1,032||£1,064 (+£32)||£1,109 (+£77)|
|South East||£836||£862 (+£26)||£898 (+£62)|
|East||£705||£727 (+£22)||£756 (+£51)|
|South West||£683||£704 (+£21)||£733 (+£50)|
|UK Average||£666||£687 (+£21)||£714 (+£48)|
|Yorkshire & Humberside||£593||£612 (+£19)||£635 (+£42)|
|Northern Ireland||£589||£608 (+£19)||£629 (+£40)|
|West Midlands||£584||£603 (+£19)||£627 (+£43)|
|North West||£566||£584 (+£18)||£606 (+£40)|
|Scotland||£556||£574 (+£18)||£595 (+£39)|
|East Midlands||£554||£572 (+£18)||£593 (+£39)|
|North East||£487||£502 (+£15)||£520 (+£33)|
|Wales||£483||£498 (+£15)||£517 (+£34)|
Monthly mortgage payments by region, and the potential changes. Source: Barclays Mortgage
Dampener for the Mortgage Market?
The mortgage market is in rude health at the moment. The number of approvals in January for new purchases was a third higher than the year before, reaching the highest level since September 2007.
According to data from the British Bankers’ Association, the value of gross mortgage lending, at £10.8 billion, was 38% higher than January 2013.
So, consumers are showing little immediate sign of concern at the prospect of interest rate rises.
But the latest findings offer a clear warning to consumers: that they should consider their next move in the mortgage market with extreme care.
Those with fixed-rate deals should find themselves immune from the impact of interest rate rises.
But those with variable rate or tracker mortgages, which currently make up many of the best deals in numerous loan-to-value categories, should expect a swift hike when interest rates finally begin heading upwards.
For more, check out our guide: fixed-rate vs. variable rate mortgages.
Andy Gray, Barclays Managing Director of Mortgages said: “In the face of a rise in mortgage rates and in the cost of living, it is vital for homeowners to review their current situation and get advice as to what their next mortgage step should be – so they remain financially flexible in the face of rate rises to come.
“The impending rise in mortgage rates that we can see from these scenarios will undoubtedly squeeze some homeowners.
“The overarching insight is that rates will rise in the medium term and so mortgage customers should be aware of the impact of any rises on their finances and review their mortgage arrangements accordingly.”
The Bank of England expects rates to rise by mid-2015. The cost for homeowners will depend on the pace of the increase.
What the MPC says:
So, what do the Bank of England policymakers say about the trajectory of interest rates over the coming years?
The Bank has recently refreshed – and complicated – its ‘forward guidance’ policy to include a broader array of factors.
But two members of the monetary policy committee, Ian McCafferty and Martin Weale, have suggested that a rate rise by the spring of 2015 is a reasonable expectation if the Bank is to keep inflation near to its 2% target.
Mr McCafferty said that earlier interest rate rises could occur if inflationary pressures demanded it.
"The exact timing of course is going to depend on events that have yet to unfold in terms of how the recovery proceeds over the course of the next six to 12 months or so,” he said.
"If we did see some inflationary pressure – more than we currently expect in our central case – that would if anything, I suspect, lead the committee to consider slightly earlier rate rises."
Likewise, Dr Weale expressed deep concerns about the housing market, describing prices as ‘very elevated’.
“I couldn’t rule out the need for a rate rise coming earlier,” he added.
The Bank has pledged to increase rates slowly, however, in a bid to help families and businesses adjust to a different financial environment. Interest rates have remained at 0.5% since March 2009.