You are here: Home - Investing -

Interest rate rises threaten a third of mortgaged households

Written by:

A 2 per cent rise in interest rates would see around a third of mortgagors need to take action to work more, spend less or renegotiate their mortgage payments, according to a survey by NMG Consulting for the Bank of England.

The number of potentially vulnerable households would be around 12 per cent of all households. However, in most cases, interest rate rises are only likely to happen if there is also a rise in wage growth. If there was a 10 per cent rise in wage growth, the impact would be substantially less.

The Bank of England suggests that mortgagors become vulnerable when their mortgage repayments hit 40 per cent of their net income. This is currently around 4 per cent of UK households, equivalent to 360,000 people. This would rise to 6 per cent if interest rates rose 2 per cent and there were a 10 per cent rise in wages.

Economic theory suggests that economies become more vulnerable to interest rate rises the longer interest rates remain low, but the survey suggested that households were less vulnerable than a year ago. The size of the average outstanding mortgage was broadly unchanged over the year to September and stands at around £83,000, but households reported modest increases in income relative to the previous year’s survey.

Households continue to be concerned about the prospect of interest rate rises. The survey asked households why they were concerned about debt. The most frequently cited reason for such concerns was the possibility of being unable to meet repayments if interest rates rose, with 36 per cent of households reporting this as being a concern, compared with 33 per cent in the 2013 survey.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
How to avoid fakes

With the Trading Standard Institute warning consumers to keep their eye out for scammers this Christmas, we tell you how...