HOMEOWNERS could be in for a shock if interest rates rise, with 60 per cent underestimating the impact it would have on their mortgage, research has shown.

The survey comes after Bank of England Governor Mervyn King said the central bank would have to raise rates at some point, depending on inflation.

About 28 per cent of homeowners interviewed in the Yorkshire Bank research admitted they had no idea how much a one per cent rise in mortgage rates would affect their monthly repayments.

More than half expected interest rates to rise in the next year, but despite this, ten per cent are planning to buy bigger homes because of the current low rates.

One in four also said they were prepared to take out the biggest mortgage they could to secure their dream home, with 40 per cent of first-time buyers admitting they would not have enough money left to carry out improvements on their new property.

About 26 per cent of people plan to move home during the next year, two per cent down on the previous quarter but still high, and 12 per cent said they would be prepared to offer the asking price of a property in a bid to secure their ideal home.

But first-time buyers are finding it increasingly hard to get a foot on the property ladder, with half saying they cannot afford to live in their preferred area.