Bank Of England publishes stress test report
A report published by the Bank of England has suggested that an extra 300,000 will struggle with their mortgage payments if interest rates were to rise suddenly. They have said that these families would become vulnerable even though household debt levels were nearly at long term averages.
The BOE recently carried out stress test and the effect of a sudden interest rate hike of 2%. A sudden rate rise would leave between 350.000 - 600,000 homes vulnerable to mortgage arrears and many of those families finding themselves unable to cope and facing possible repossession. The figures were collated taken into account no increases in wages growth and no increase in household income. Mortgage holders have had the benefit of the emergency 0,5% base rate set by the BOE back in 2009.
It is now looking unlikely that interest rates will increase before the end of next year which is good news. Along with this the financial markets believe that it will be a further couple of years before interest rates settle at around 2.5%. The era of high interest rates appears to be in the past for the time being. This will be welcome news for those borrowers on tracker mortgages. It will also be good news for consumers who will have more disposable income.
Of course not everybody benefits from low interest rates. Savers have been hit hard over the last few years as interest rates on savings accounts have been very low. They would be happy to see rates increase. The Bank also pointed out that over one million new homeowners have got onto the property ladder since the emergency rate of 0,5% was set back in 2009.
That is a lot of borrowers who have not experienced a hike in interest rates and have not seen there mortgage payments increase. The Bank will be acutely aware of this and will want to introduce any rate increases over a period of time.