Over three-quarters (78 per cent) of people on a variable rate mortgage are not budgeting for increased payments that would accompany a rate rise, according to a survey by Equifax.
This is despite 80 per cent believing there will be a rate increase within 12 months.
The online survey of 400 variable rate customers, conducted by YouGov, shows 28 per cent of homeowners on a variable rate mortgage are unaware how much their monthly payments will be if rates rise 0.5 per cent.
When asked what they would cut back on in order to cover their increased payments, 41 per cent said they would go out less while a third said they would cut back on their holidays. Just 6 per cent said they would cut back on their pension contributions.
Equifax banking and financial institutions director Jake Ranson says: “The low interest rate environment has created a false sense of security among many homeowners, particularly for those who have taken out their first mortgage in recent years. Homeowners have had time to get their house in order, yet the research shows a high proportion of homeowners will get a nasty shock once rates rise.
“A bump of 0.5 per cent can have a significant effect on mortgage repayments, forcing unprepared homeowners to seriously rethink their spending habits. There is also a risk of falling into arrears. This research highlights that although many anticipate a rate change, some borrowers are not being realistic about the impact this can have.”