Interest rates: Do you know how rate changes could affect you?

Interest rates: Do you know how rate changes could affect you?

Over the past few years, the all-time low base rate set by the Bank of England has allowed many people the chance to get on the property ladder, thanks to the fact it has made mortgage borrowing more affordable than ever before. 

However, with speculation rife that the central bank is looking to increase interest rates in the near future, and rumours over what this will mean for people operating in the property market, it appears that many people are confused, which could mean a lack of activity in the sector that damages its prospects moving forward. 

According to findings published this week by Barclays Mortgages produced in partnership with the Centre of Economic Business Research (CEBR), some 46 per cent of people in the UK are unaware of the current interest rate, while 88 per cent were not aware that the interest rate is predicted to rise in 2015. 

The survey found that 61 per cent are uncertain of when increases could happen, which could leave them open to changes in the price of mortgages and repayments that take them by surprise. 

"Our report shows there is widespread confusion over interest rates and we encourage homeowners to review their current situation and get advice on what their next mortgage step should be," said Andy Gray, Barclays managing director of mortgages.

What will interest rate rises mean for me?

The biggest effect of any change in interest rates will be felt by those who have a variable rate mortgage presently. While people buying homes will find that it becomes more expensive to get a mortgage in the first place, it is current homeowners who need to be clued up on any impending changes. 

An alteration in interest rates will mean people on variable mortgages paying more for their monthly repayments. Worryingly, some 49.5 per cent of people on variable mortgages surveyed by Barclays said that they don't expect or are unaware if their mortgage repayments will change in 2015. This is in spite of CEBR's predictions that a mortgage rate alteration would cause total variable rate repayments across the UK to rise by £1.1 billion in 2015. 

If, as predicted, the base rate does climb this year, it is likely it would go from the historic low of 0.5 per cent to potentially as much as 1.25 per cent. If this happens, then the average mortgage owner would see their repayments jump by £118.97.

What should I do to protect myself against interest rate rises?

Any large change in repayments can be jarring to a homeowner but there are ways to make sure that you are protected against the alteration in interest rates, should it happen. First and foremost, Barclays suggests, anyone who owns a variable mortgage product should be keeping up to date with the latest from the Bank of England. After all, its activities can directly affect their personal finances down the line. 

Another tactic is to simply look towards setting a budget. It should be easy to look at your own finances already and see what a change in interest rates will mean for your repayments. It can be a good idea to put a little away each month in order to cover this, or simply look at any spends you currently have that are not essential, and ask yourself if you could cut them out. 

In the long run, this could leave you in a much better position should your mortgage rates change.