Mortgage holders more sensitive to payments not rates

This worrying trend indicates that SVR mortgage holders are very likely to experience payment shock as rates do begin to rise.

Some 41% of those on the lookout to move mortgage in the next 12 months would definitely look for a new deal if their monthly payments rose by £100 and of those not planning to be active in the next 12 months 35% made the same claim. Only when faced with an interest rate rise of 3% did a similar proportion of "free to leave" mortgage holders state that they would definitely look for a new deal.

"Free to leave" homeowners appear keen to fix but are extremely rate sensitive – and all plumped for a shorter-term fix at a lower rate when asked to compare various options, highlighting a disparity between expectations of attractive long-term fixed rates and those likely to be available on the market in the coming months.

Most inactive mortgage holders (those with no current plans to move or remortgage) are happy on their current SVR, enjoying the benefits of low monthly mortgage payments and have few incentives to leave.

An increase in their monthly payments rather than a rise in interest rates is more likely to knock these consumers out of their inertia.

If payments increased by up to £100 per month, more than 37% of respondents would look for a new deal, but an interest rate rise of 2% would have the same impact on only one in six. Half of those with no intention to be active said that they would switch lenders for a saving of £100 per month and a worrying 36% of inactive mortgage holders don’t know what their current interest rate is!

Richard Tolchard, Senior Mortgage Product Manager at first direct said: "It’s easy to see why homeowners enjoying the benefits of a low variable rate might be unwilling to volunteer for an increase in their monthly payments by moving to a fixed rate now. The upside is that those who move now could be laughing in the end.

"The ‘wait and see homeowner’ looks set for a payment shock when base rate does move, with a 1% increase in variable rates driving a monthly payments rise of over £112 per month. The best fixed rates are likely to be long gone when this happens."

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