Gradual rate rises 'best way to safeguard UK growth'

However, a significant proportion of households concerned about higher rates said they would be forced to cut back on essentials if payments rose £100 a month – or the equivalent of a 1.5 percentage point rise on the average UK mortgage of £115,000 over a 25-year period.

The poll of 1,000 mortgagors revealed that while 62pc would be forced to cut back on luxuries such as holidays and going out, 30pc would have to reduce spending on everyday items such as food, energy, clothing or insurance. If payments increased by £150, the cutbacks were more severe, with 35pc having to reduce spending on essentials.

The research highlights how crucial steady rate increases and the return of stronger wage growth will be to help borrowers to cope with higher repayments.

Martin Weale, one of the nine Bank of England policymakers who set interest rates, has highlighted the risk of sharp interest rate rises if inflationary pressures begin to build amid a rapidly growing economy. He has argued that raising interest rates earlier will ensure increases are gradual and not behind the curve.

Other Bank policymakers have warned about the dangers of keeping rates at a record low of 0.5pc for too long. In a speech last month, Mark Carney, the Bank’s Governor, said interest rates “will need to start to rise” in the coming months to stop people taking on more mortgage debt.

“History shows that the British people do everything they can to pay their mortgages. That means cutting back deeply on expenditures when the unexpected happens. If a lot of people are highly indebted, that could tip the economy into recession,” he warned.

A large number of mortgagors are currently on a variable rate deal, which means they are more exposed to the impact of rate rises

While more than eight out of 10 new mortgages in the first three months of the year were tied to fixed-rate deals, around 65pc of existing mortgages are still linked directly to Bank Rate, compared with 38pc before the crisis. Almost one in five people surveyed by Halifax were on their lender’s standard variable rate, leaving them most exposed to rate rises, while 17pc of respondents said they did not know which type of deal they were on.

Experts said ignorance or apathy could end up proving costly.

“Apathy has always been costly in financial services, but for mortgage borrowers, not reviewing on a regular basis can be very costly,” said David Hollingworth, director at London & Country Mortgages. “People will chop and change car insurance or even utilities now regularly, but to not take the same approach to the biggest outgoing can cost you dear.”

Meanwhile, a report by DIY group Kingfisher showed that rising energy prices were by far the greatest fear of European homeowners, with 65pc of people saying it was their number one worry, compared with 23pc of people who were worried about keeping up with their mortgage or rent.

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