Credit card interest rate rises to cost homeowners £2.8bn in the next 12 months

Interest rate rises on revolving credit, including credit and store cards, are predicted to cost British homeowners an extra £2.8bn in the next 12 months.

This is according to research commissioned by specialist mortgage lender, Pepper Money. The research found that 12.7 million homeowners could be hit with an annual increase in interest rate payments on their credit cards, store cards and overdrafts, of more than £750 in the coming year.

The research conducted by YouGov, found that 3.8 million homeowners are already feeling the pinch, as the average interest cost on their revolving credit has increased by more than £60 a month in the last six months alone. This means that they could be spending an additional total of £2.8bn in interest payments on revolving credit in the next year.

Laurence Morey, CEO at Pepper Money, said:

“We know that, with costs rising, the monthly commitment of servicing short-term debts such as credit cards, store cards and overdrafts, can stifle the ability of many families to meet their monthly outgoings, particularly when the cost of such credit is also increasing. We also know that, in the right circumstances, consolidating expensive short-term credit onto a longer-term loan at a lower rate, can help to put families in greater control of their cash flows enabling them to normalise their finances, as they pay down that credit over the longer term.

“At Pepper Money, our average headline initial rate available to new homeowner loan applications is 6.1%, which compares favourably to other forms of lending such as unsecured loans and credit cards. In the current environment, this ability to refinance onto a lower rate could provide thousands of borrowers who have built up enough equity in their property with the respite they need to manage their monthly finances and navigate this difficult period.”

Paula John, an independent mortgage specialist, said:

“Debt consolidation may not be the right avenue for everyone, but there are many families that could benefit from taking steps to lower the interest rate they are paying on their revolving credit, like credit cards and overdrafts, by refinancing onto a loan that is secured on their home over the longer term. In fact, by being proactive and taking control over their finances in this way, many people can actually boost their credit score.”

Laurence Morey continued: “At Pepper Money, we undertake regular in-depth analysis of how our customers circumstances evolve after talking a Pepper Money homeowner secured loan to ensure we are achieving our mission of helping our customers succeed, and the data shows that the debt consolidation loans that we advance are to hard working people with good credit scores and good incomes. For example, the median salary of our homeowner loan customers is £54k, which compares to the ONS median average UK salary of £31k.

Often these people have run up large balances over a long period of time and they are taking proactive steps to normalise their circumstances. In doing so, they are also often improving their credit profile, and we see average credit scores increasing in the period after taking their consolidation loan. They are also doing so whilst maintaining a comfortable buffer of equity in their homes. The average LTV on our second charge lending is just under 70% when taking account of their existing first charge mortgage. It’s an option that is already helping many responsible families to take control of their finances and we see this becoming even more important over the next year as interest rates on revolving credit continue to rise and the squeeze on living costs continues.”

Published: 23 August 2022