Why an interest rate rise could mean young homebuyers are stepping into a debt nightmare
If interest rates were to rise just by 0.25 per cent, the same mortgage would cost you and extra £18 a month - a hefty £216 a year more
FIRST-TIME buyers could see hundreds of pounds added to their yearly mortgage payments if there is an interest rate rise.
Last week the Bank of England opted to keep rates at their historic-low of 0.25 per cent - but warned a rise may have to happen before the end of the year.
And that could spell trouble for millions of first-time buyers and homeowners who struggled to get on the property ladder in the first place.
If the rise is reflected in your repayments, you could see your bills rise by hundreds.
Currently, a £150,000 mortgage over 25 years with an interest rate of 2 per cent would cost you £635 per month.
If rates were to rise just by 0.25 per cent, the same mortgage would cost you and extra £18 a month - a hefty £216 a year more.
It's even worse if rates were to rise by one per cent.
You would be looking at a monthly repayment of £711 a month - an increase of £75 - and an overall eye-watering annual increase of £900.
Mortgage expert, David Hollingworth, of London and Country Mortgages, said: "Interest rates have been so low for so long that it would be easy for borrowers to become complacent rather than prepare for the day when rates do start to climb.
"The good news is that fixed rates are extremely competitive at the moment and so offer borrowers the chance to lock their payments in at a low now and also protect against rising rates in the future."
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Governor of the Bank of England, Mark Carney, said any rate rise would be "limited and gradual" so to try and minimise the shock of the first rise in a decade.
Figures from city watchdog, the Prudential Regulation Authority (PRA), which were highlighted by the today, revealed that lending to first-time buyers who have stretched themselves to get on the property ladder has soared.
There has been a huge increase in the amount of lending to first-time buyers who scrape together a deposit of just 5 per cent or 10 per cent and borrow at least three and a half times their salary.
In the first three months of 2010, loans to buyers who had a deposit of just 5 per cent or 10 per cent and borrow at least three and a half times their salary was £279million BUT in the three months to July the figured was £2.2billion.
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