In its latest Quarterly Bulletin, the Bank of England has estimated that only 4% of mortgagers would need to take action if interest rates rise to 2.5%, assuming incomes rise by 10%.
However, almost two in five mortgagers would be prompted into action if wages remain unchanged.
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), said: “While these figures may look alarming, it’s important to remember a 2% increase in the Bank Rate will not happen overnight. The Bank of England have made repeated assurances that any interest rate increases will be gradual, so it could be a number of years before we reach a base rate of 2.5%. Homeowners with fixed-rate mortgages – representing 94% of buyers in October – also won’t be impacted by interest rate rises until their fixed period comes to an end. In today’s market of record low mortgage rates, the security of a fixed rate deal has never been so affordable.
“Although the Mortgage Market Review (MMR) cemented rules such as interest rate stress testing, most lenders have been carrying out this process for several years. This ensures no-one is sold a mortgage that they cannot afford should interest rates rise. However, consumers who took out their mortgage a long time ago – or simply haven’t reviewed their monthly outgoings in a while – should remain vigilant to any changes in their finances that could make repaying their mortgage more difficult in the future.
“For the small minority who might struggle as interest rates rise, lenders have a responsibility to work with them to ensure repaying their mortgage is made easier, so engaging your mortgage provider in an honest conversation early on is vital.”