Market Watch, Property

BoE says Mortgage Holders Could Cope with Rise in Interest Rates

9 Dec , 2014  

hand draw house against blue skyHeadline reads: The majority of people with mortgages could cope with a rise in interest rates, the Bank of England has said.

Small print reads: The assumption above is based on a 10% rise in household incomes.

According to the Bank’s annual survey of household finances, just 4% of mortgage holders would need to take action if interest rates rose to 2.5% from their current 0.5% historic low.

However, if incomes did not rise, the same survey reported that 37% more mortgagers would need to act in response to a rate rise.

The Bank also said an interest rate hike would increase the number of households with mortgage repayments of more than 40% of their gross income, putting them at greater risk of falling into arrears.

It said the number of households having trouble paying their home loans would increase by a third to 480,000 in the event of an interest rate hike to 2.5%, assuming household income rose by 10% at the same time. However, if pay stays the same, this figure increases to 660,000.

Despite all of these warnings, the Bank has said that the number of people falling into arrears on their mortgage should be fewer than in 2007.

It is widely thought that when interest rates do rise, they should do so gradually.

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