The current series of rate increases mean that UK homeowners are likely to spend a further £1.6bn in interest payments on unsecured loans over the next 12 months, according to Pepper Money.
The specialist mortgage lender’s survey found that almost 8 million homeowners face being hit with an annual rise in interest cost payments of more than £900 on unsecured loans for items such as their cars.
It found that 7.7 million homeowners currently have at least one unsecured loan.
Of these, 15% have already seen the interest rate charged on their unsecured loans increase in the last six months, with the average increase being more than £900 a year.
Over the next 12 months, this means that British homeowners could spend an extra £1.6bn in interest payments on unsecured loans.
Earlier this month, the Bank of England lifted interest rates by 50 basis points to 1.75%, its biggest hike since 1995, which raised the base rate to a fresh 40-year high. It was the sixth rate rise since last December.
The move by the central bank comes as it battles rising inflation, which stood at 9.4% in June, which the BoE forecasts will hit 13% by the end of the year.
Pepper Money chief executive Laurence Morey says: “We know that the monthly commitment of servicing short-term debts such as personal loans can put extra pressure on family finances if the cost of servicing those loans is increasing.”
Mortgage advisor Paula John adds: “The spiralling cost of living is putting the squeeze on everyone’s finances as the price of essentials like food and fuel continues to rise.
“The situation is exacerbated as interest rate rises mean that the cost of borrowing has also increased. So those customers with outstanding credit, such as unsecured loans, could also see their payments increase.
“Some unsecured loans are fixed rates, but many have a variable rate that can rise in line with interest rate increases. And this means that the cost of paying the interest also rises, putting further pressure on their finances.”