Interest rate rise of 1% would cost average UK homeowner £930 a year

February 27, 2018

A Bank of England rate change would add £10bn to the UK mortgage bill, Savills says.

A 1% rise in interest rates would add around £10bn to the UK’s mortgage bill, according to analysis from estate agent Savills.

The increase would equate to adding £930 a year to the cost of servicing the average mortgage. Borrowers on variable rate deals influenced by movements in the Bank Of England base rate would be the first to feel the pain, putting the annual mortgage bill up by £4.3bn immediately, Savills said.

The 59% of borrowers on fixed-rate deals would feel the impact later, when their existing mortgage deals come to an end. Of the total increase, Savills calculates that buy-to-let landlords would pay an additional £2.4bn, with other home owners paying £7.8bn more.

Savills forecast that average UK house price growth will stand at 14% in total over the next five years.

Borrowers are bracing themselves for further possible interest hikes following the increase last year from 0.25% to 0.5%. Earlier this month, the Bank of England governor, Mark Carney, readied borrowers for further and faster interest rate hikes, although he also stressed that rises would be limited and gradual.

“This would bring an end to the historically low mortgage costs that have boosted housing affordability and limit the buying power of those needing a mortgage, and underscores our forecasts for more subdued house price growth over the next five years,” said Lucian Cook, head of residential research at Savills.

With the possibility of further base rate rises on the horizon, homeowners looking to lock into a long-term deal to get some certainty over their repayments may also find the rates on offer have edged up. reported last week that average rates on 10-year fixed-rate mortgages on the market have started to edge up from an all-time low. Savills said the total number of outstanding mortgages has fallen by over half a million over the past 10 years, as existing homeowners clear their mortgage debts at the same time as younger households struggle to buy homes.

Savills based its research on figures from the Bank of England and UK Finance, the trade body for British banks.