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BoE: Most borrowers could cope with rate rise

The majority of mortgage borrowers could cope with a 2 per cent increase in interest rates, according to a report by the Bank of England.

Research commissioned by the Bank found that assuming incomes rise, only 4 per cent of mortgage borrowers would need to take some kind of action if rates increased by 2 per cent.

However, if incomes remain unchanged, then 37 per cent of borrowers would need to take action if rates went up.

Compared to a year ago, fewer borrowers say they would be affected on both income measures.

The report also found that the average borrower would reduce their spending by 0.5 per cent if interest rates rose by 2 per cent.

The Bank says: “Overall, these results do not imply that increases in interest rates from their current historically low level would have unusually large effects on household spending.”

However, the Bank notes that the outlook for household income will be a key factor in determining borrowers’ vulnerability to interest rate rises. It says there is a risk that the most vulnerable households will experience lower-than-average income growth as rates rise.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. If rates go up but incomes remain unchanged, just what “action” does the BoE envisage 37 per cent of borrowers being able to take? What room for manoeuvre do most borrowers in the early stages of house purchase have? Chances are they already have the largest mortgage and payments on it that they can afford. By what percentage will monthly payments for the average mortgage increase if rates rise by 1% or 2% p.a.? On just what assumptions is the BoE basing its assertion that most borrowers will be able to cope with a rate rise? My guess would be that most of them are extremely concerned at the prospect of a rate rise.

  2. The Cynical Broker 8th December 2014 at 10:39 am

    The calculation assumes a rise in household incomes of 10% !!! Where the heck is that going to come from ? With GDP set to average around 2.3% for the bext 5 years, it seems inconceivable that we’re going to see household incomes up by 10%, it’s pure fantasy! and very worrying too !

  3. GP Styles (GPS Economics) 8th December 2014 at 10:44 am

    These figures from the BoE assume a 10% rise in incomes for all households. This is seems a little optimistic given recent trends and particularly for the more vulnerable households.

  4. The Cynical Broker 8th December 2014 at 12:03 pm

    The calculation assumes a rise in household incomes of 10% !!! Where the heck is that going to come from ? With GDP set to average around 2.3% for the bext 5 years, it seems inconceivable that we’re going to see household incomes up by 10%, it’s pure fantasy! and very worrying too !

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