More than half of UK mortgage holders have admitted they are unprepared for a potential interest rate rise, according to new research.
The Money Advice Service revealed that 56% of more than 3,000 UK mortgage holders had no contingency plans in place.
One in five households also revealed they would “really struggle to find extra money” to cover any potential increases in repayments.
As a result, the Money Advice Service has urged people to plan ahead, especially as nearly half of those questioned said it would be difficult to cover up to £150 extra per month.
The base rate – set by the Bank of England – has been at a historic low of 0.5% since 2009 and a potential rise is anticipated to occur in the early part of 2015.
However, 8% of respondents said they were unaware of this potential increase while this figure increased to 16% for those aged under 35.
More than two-thirds of people said they were ‘financially stretched’ when they took out their mortgage, while the figure increased to 77% among under 35s.
A further 13% also said they were currently living beyond their means, which resulted in nearly one in five people overall saying they would really struggle with mortgage payments after a rate rise.
Despite this, the survey also revealed that few people have considered what impact an interest rate rise would have – 59% said they had not even considered what a rise of 1% might do.
Worryingly, 3% of people questioned were unaware of how much they were currently paying, showcasing the need to stay on top of finances.
Preparing for a financial impact
The vast majority of people in the survey said they would be affected by an increase in interest rates – 84% said they would be affected in some way.
As a result, immediate action would be required to ensure mortgage payments could be made and there were plenty of possible approaches listed.
Some 56% of people said they would cut back on day-to-day basics, while 35% of people said they would need to raid their savings.
A new job would provide the additional funding in 15% of cases, while 5% said they would turn to a credit card to cover the payments required.
Budgeting in advance
Early preparation for a change in rates could leave some households in a healthier financial position for the future.
Putting money aside for such an event could be essential, while cutting current spending levels could also help in the long term.
Such approaches could be made possible with a prepaid card, as available funds could be loaded on to it and then spent accordingly.
As only the specific amount on a card can be spent there is no chance of overspending, while a lack of a credit facility means it is impossible to rack up debt.