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Interest rate rise set to cost households £1.8bn in first year alone

Sue Lucas

Last weeks' Bank of England’s interest rate rise will cost households an extra £1.8bn* in interest payments in the first year alone.

The majority of this £1.8bn rise in interest costs will be from variable rate mortgages. UK borrowers currently have £546bn of floating-rate mortgages secured against their homes, and the latest rate rise will see households pay extra £1.4bn in interest in the next 12 months.

UK borrowers have only been saved from even higher payments by the wide use of fixed-rate mortgages in recent years. Currently, 59.7% of the UK’s residential mortgages are on a fixed rate.

The current record high levels of consumer credit will also see households pay an extra £465m in interest on their credit card debt, overdrafts, car loans and unsecured personal loans in the next year.

Mike Finch, Restructuring & Insolvency Partner at Moore, says: “The trigger has been pulled and those on variable rate mortgages will be hit almost immediately.

“This latest rate rise will have implications far beyond the next twelve months, and many households on a floating-rate mortgage will have to budget accordingly. This will get worse as more fixed-rate mortgage deals come to an end and people are forced to come to terms with higher rates.

“Interest rates have been so low for so long and this will be a rude awakening for people who have grown up on cheap credit.”

Interest rate rise set to cost households £1.8bn in first year alone

*Source: Bank of England