by Mark Johnston
Almost 35% of mortgage holders do not understand their mortgage, the interesr rates they are on and how a Bank of England base rate change would effect them.
New research by the Financial Education Body (CFEB) shows that many homeowners wouldn’t understand how a 1% increase to the Bank of England base rate would impact their monthly repayments.The research found that over 50% of homeowners are expecting a base rate change but many wouldn’t did not understand what this meant to them. When asked about their own mortgages many did not know whether they were on a variable, fixed, tracker or discount mortgage with few understand what each of the mortgage types meant.
Worryingly when questioned, 15% did not know how they would cover mortgage increases if their payment went up by £200 per month.
CFEB chief executive, Tony Hobman, comments: “Lack of time means many of us often put off reviewing our finances, but it doesn’t have to be time consuming to keep on top of your money matters.” He went on to say “Our Money made clear ‘mortgage toolkit’ – which can take as little as five minutes – makes it easy to see where you stand so you can plan ahead.”
Borrower with a £190,000 mortgage on a tracker mortgage current at 4.5% would have a monthly repayment of £1056. A 1% increase in the Bank of England base rate could increase the mortgage rate to 5.5% increasing the mortgage by £110 this would take the monthly repayment from £1056 to £1166. A 3% rise would increase payments by £330 which many have not budgeted for.
Although the Bank of England base rate is at a record low at 0.5% at the moment, it was 5% two years ago (an increase of 4.5%) whilst 20 years ago it was over 13%.
A whopping 54% of mortgage holders have no plans to review their deal on a regular basis and most do not know when it will expire.
The CFEB was set up recently by the Financial Services Authority which regulates the mortgage market. The body was put in place ahead of regulatory responsibility moving to the Bank of England to help consumers manage their finances.
CFEB is launching its first campaign ‘Stay on top of your mortgage’ to provide homeowners with help and advice to be prepared for when interest rates or their personal circumstances change.
Tony Hobman, chief executive of the Consumer Financial Education Body, says: “Interest rates have been at record lows for some while now. Although there is uncertainty about when this will change, it is clear from our research that many people with mortgages haven’t thought about what it would mean for their monthly payments, or where they would find the extra money in their household budget if their mortgage rate was to go up.”
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