BoE believes mortgage owners could cope with a 2.5% rate rise
12/12/2014
The Bank of England (BoE) believe the majority of people with mortgages could cope with a rise in interest rates, as long as wages rise alongside it.
The BoEs annual survey of household finances found that just 4% of mortgage holders would need to take action if interest rates rose to 2.5% from their current historic low of 0.5%, although the report assumes a 10% rise in household incomes should the base rate rise to 2.5%. If incomes do not rise along with the base rate and stay at the same level they are at now, 37% of mortgage owners would be negatively effected by the rate rise.
The report shows that 480,000 households would have trouble paying their mortgages if there was a 10% rise in wages and interest rates rose to 2.5%, which is a 30% increase on the current rate. This figure increases to 660,000 if pay stays the same as it is now. Despite this, the BoE believe the number of people falling into arrears on their mortgage should be fewer than pre 2008, just before the financial crash.
Experts are worried about an interest rate hike that could increase the number of households with mortgage repayments of more than 40% of their gross income. This rate leaves homeowners at a much higher chance of falling into arrears. Right now, 1.5% of households are in that position, according to a report done for the Bank of England by the researchers NMG Consulting.
The BoE said:
"These results do not imply that increases in interest rates from their currently historically low level would have unusually large effects on household spending"
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