Mazars’ analysis of Bank of England data shows UK households are currently paying £17.2bn annually in (floating rate) interest payments that are likely to be “affected immediately” by an interest rate rise, including on variable-rate mortgages, credit card debt and other personal lending.
At present the Bank of England’s base rate is 0.1%. According to Mazars, if rates rose by just 0.25%, these annual interest payments would increase to £18.2bn almost overnight.
The group also said further increases in the base rate would have an “even more dramatic impact”.
If interest rates were to rise by 0.5%, household interest payments would leap by a further £1bn to £19.2 bn, the firm noted.
The group also said that the majority of the rise in interest payments would be driven by floating rate mortgages. UK borrowers currently have £325bn of floating-rate mortgages secured against their homes, at an average interest rate of 2.29%.
Mazars said while the Bank of England has been focused on keeping the cost of borrowing low during the pandemic, this “may have to change should inflation continue to rise”.
Paul Rouse, partner at Mazars, said: “While the Bank of England is unlikely to raise interest rates in the short term, if inflation continues on its current course, there could be no option but to do so.”
“UK households need to be aware of the potential consequences of interest rate rises on their finances, should inflation force a change of course from the Bank.”