Mortgage woe ahead as rates set to increase

HUNDREDS of thousands more households could struggle to keep up with their mortgage payments when interest rates start rising, the Bank of England has warned.

Around 360,000 homeowners have fallen into arrears because their mortgage repayments have gone over 40 per cent of their gross income.

The Bank is predicting that an extra 300,000 households will join them once rates begin to rise from their current record low.

Interest rates are currently 0.5 per cent but are expected to rise some time in the New Year. While the increase is expected to be gradual, the Bank warns that even a hike to 2.5 per cent would see the number of families struggling to pay their mortgages rise.

It predicts that around 480,000 households will be plunged into arrears if wages increase by 10 per cent over the same period, but the figure rises to 660,000 if pay stays the same.

Older people will benefit as they are more likely to be savers, while the young are set to suffer most.

Bank governor Mark Carney has warned an increase is on the way but the pace of any rises will be slow.

However, the number of home owners affected by the change will be a small proportion of the total number.

Bank figures show that the proportion of households with a high mortgage debt servicing ratio will rise from 1.3 per cent to 1.8 per cent in the event that interest rates rise by 2 per cent, well below previous peaks.

Andrew Tyrie, chairman of the Treasury Select Committee said: “Interest rates have been so low for so long now that some might conclude this is the new normal. They shouldn’t.”