Growing fears of impact of interest rate rise

Around 27 per cent of people said they were concerned about the

prospect of having higher mortgage repayments, according to moneysupermarket.com.

The Bank of England's Monetary Policy Committee kept interest rates on hold on Thursday. But rates are likely to start rising during 2011, increasing monthly mortgage repayments for people with variable rate loans.

A 1 per cent hike in the base rate would cost someone with a 150,000 mortgage, who is currently on a standard variable rate of 2.5 per cent, around 80 a month or 960 a year.

If interest rates rose back to their October 2008 level of 5 per cent, repayments for someone with the above mortgage would rocket by 443 a month or 5,300 a year, although in reality, homeowners would probably take the opportunity to remortgage to a more competitive deal.

But while many people are worried about the impact rising interest rates would have on their finances, 53 per cent said they would welcome the move, as it would enable them to get better returns on their savings.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Low interest rates have been fantastic for a large proportion of UK homeowners and subsequently many people have become used to more disposable income each month.

"However, a base rate rise will push up mortgage rates, forcing many families to rein in their spending – potentially causing financial problems for many.

"Whilst it is expected that the base rate will creep up slowly, consumers need to understand the effect this will have on their finances and plan accordingly."

He said people sitting on their lender's standard variable rate should consider swapping to a fixed rate deal before interest rates start to increase.