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Interest rates rises could cost home owners £252 a year

HOME owners could see their mortgage payments rise by £252 a year on average by the end of next year if interest rates start rising at a moderate pace, a report forecasts.

Research for Barclays Mortgages by the Centre For Economic And Business Research found average mortgage payments across the UK could rise from their current monthly levels of £666 to £687 a month by December 2015 - £252 a year.

The Bank Of England base rate, which has been kept at a historic 0.5% low for five years, has been helping to keep mortgage payments relatively affordable, but signs that the economy is improving have prompted speculation about possible rises being on the horizon.

The Financial Flexibility report assumed the most likely scenario is interest rates will rise at a moderate pace, which for its model would involve the base rate rising to 0.75% in May 2015 and then 1% in August before edging up to 1.25% in November next year.

With strong differences in house prices across the UK, the extra amount of money people would find themselves paying by December 2015 under the "moderate" model of interest rate increases varied.

People in Scotland would be paying £18 extra a month, but those in London would have to find an extra £32 a month, with those in Wales and the North West projected to be paying an extra £15 a month.

High and middle-income earners would see the percentage of their income that is taken up by their mortgage payments remain broadly constant, at 12% and 20% respectively if there is a moderate interest rise, while those in the lowest fifth of the income groups could see it increase from about 54% to 55%.

Andy Gray, Barclays' managing director of mortgages said: "We have tried to model the realities UK homeowners may face in the very near future."

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