Families on rate rise knife-edge

Published: Monday 8th December 2014 by The News Editor

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The Bank of England will warn that an extra 300,000 families risk struggling to keep up with their mortgage payments in the face of a sharp interest rate rise, according to reports.

While older savers will benefit from a increase, the younger generation is likely to suffer, the central bank is expected to warn.

The number of homeowners that fall into arrears increases significantly when mortgage repayments go over 40% of gross income, which is already the case for 360,000 households, the Daily Mail said.

BoE reports will warn that a sudden hike to 2.5% would see the figure rise to 660,000, it added.

Bank governor Mark Carney has previously warned that an increase is on the way but the scale is likely to be gradual.

The BoE is expected to warn that “higher interest rates will increase financial pressure on households with high levels of debt”.

MPs warned that some borrowers will have overstretched themselves when taking advantage of the interest rate, which has been at a historic low of 0.5% since 2009.

The middle classes are likely to be “hit hugely” by rises, which are expected next year.

Treasury select committee chairman Andrew Tyrie told The Times: “Interest rates have been so low for so long now that some might conclude this is the new normal. They shouldn’t.”

Labour’s John Mann, who sits on the committee, said the middle classes were the “group that is most vulnerable”.

He told the newspaper: “They are likely to have over-extended themselves, without being able to finance their way out of debt problems.

“The middle classes are likely to be hit hugely.”

Published: Monday 8th December 2014 by The News Editor

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