Increases in the bank rate could force lenders to adopt harsher repossession strategies, according to Nationwide.
Speaking at the Great Housing Market Debate in London last week, Nationwide group distribution director Matthew Wyles said the cost of managing arrears has been lower than in previous downturns because of the record low base rate of 0.5 per cent. He said: “If you look at the horrible recession of the early 1990s, the base rate doubled from 7 per cent to 15 per cent. Trying to pay those mortgages broke most perfectly responsible borrowers in two. We have had the reverse effect this time round as interest rates fell significantly.
“It has made mortgages more affordable but it means the cost of risking a roll-up of arrears has also been much lower for the banks, so we have been able to cut people some slack.”
Wyles warned the Bank of England that the situation “could quite easily go into reverse if rates start to rise with any degree of rapidity”.
Simplicity Financial Services principal Chris Downham says: “If rates went up, it would cost banks more to look after these people. If interest rates increased by any more than 0.5 per cent, I think it would cause massive issues for some borrowers.”