One in ten people on variable rate mortgages could come under financial pressure following the Bank of England’s (BoE) base rate rise yesterday, according to a survey by Opinium for Hargreaves Lansdown. 

The BoE increased the base rate by 25 basis points from 0.75% to 1%, the highest level since 2009.

The survey, which was sent to 2,000 people in April, revealed that the BoE rate hike could push mortgage payments up by more than £40. 

If the BoE rate hits 1.5%, the survey found that more than a third of people with variable rate mortgages face difficulties.

Meanwhile, with 1.5m fixed-rate mortgages set to expire this year, more than a third of respondents said they could face financial stress if the base rate hits 1.5%.

Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “The rate rise may have looked relatively harmless, but with so many people’s finances on a knife edge, it risks pushing them into difficulties. Even this small increase could put one in ten people on variable rate mortgages under financial pressure.”

Coles continues: “If rates continue to go up, and the BoE rate reaches 1.5%, more than one in three could face real financial challenges. And while those on fixed rate mortgages are protected, for now, 1.5m face the end of their term this year, and over a third might struggle with the extra cost.”

When asked how much monthly mortgage payments would have to rise this year in order to put finances under pressure, 10% of respondents said up to £50 would be enough. 

If increases started closing in on £100 a month, a third of people said they would face difficulties, and with a rise of up to £200 a month, two thirds said they would struggle. 

Coles comments: “Assuming rate increases are passed on in full, someone with a 25-year £300,000 repayment mortgage, on an average standard variable rate (SVR) of 4.71%, could find themselves paying £42 more each month after yesterday’s rate rise.”

“If the BoE rate was to subsequently increase to 1.25%, they might pay £88 more a month overall, and if it went to 1.5%, in total, they might pay £132 more.”

“Those on an average two-year tracker of the same size and duration could see marginally smaller rises, but it could still be £38 this month, £75 at 1.25% and £114 at 1.5%.”

Meanwhile, the survey found that three quarters of mortgage holders have protected themselves by opting for a fixed-rate mortgage. Coles says while people can reap the benefits during the fixed period, “it means they’ll feel the impact in one harsh blow when their mortgage expires”.

“These hikes may have been more manageable before we were hit with eye-watering inflation, but while we face soaring bills on all sides, for some people, higher mortgage payments will feel like the straw that broke the camel’s back,” she adds. 

Following the base rate rise, lenders such as Aldermore announced changes to their variable mortgage rates. From 1 June, customers with mortgages linked to the BoE base rate will increase by 0.25%. 

From 10 May 2022, Aldermore said all its new illustrations and mortgage offers will reflect the new base rate. 

Also from the start of June, Aldermore’s standard variable mortgage rate will increase from 5.23% to 5.48% for existing customers. 

In addition, Santander informed customers its tracker mortgage products that are linked to the base rate will automatically change from the beginning of June, including the lender’s follow-on rate, which will increase from 4.00% to 4.25%.

The Santander and Alliance & Leicester SVRs will also increase by 0.25% from 4.99% to 5.24% from the start of next month. 

Meanwhile, Leeds Building Society made the decision to hold its standard variable rate despite the base rate increase. 

The society’s chief executive Richard Fearon commented: “As a building society, it’s important for us to balance the needs of savers and borrowers, and we’ve worked hard in this low interest rate environment to offer long-term value to both.”