The Financial Conduct Authority has urged the mortgage industry to get their systems in place for the inevitable “fallout” that will come when interest rates rise either later this year or early next.
Speaking at yesterday’s (18 September) Imla Great Mortgage Debate, Lynda Blackwell, FCA mortgages and mutuals sector manager, cited Bank of England figures which assess the financial position of British households.
Research done by the Bank of England asked existing borrowers about how much they think their monthly mortgage payments could increase for a sustained period “without the borrower having to take some kind of action”.
Referencing the figures, Ms Blackwell said: “If there is a 1 per cent increase [in interest rates], 24 per cent of existing borrowers are going to have to go elsewhere to find money; if there’s a 2 per cent increase it is 44 per cent; if it is 3 per cent it goes up to 55 per cent.
“What worries us is not not so much arrears and repossessions - but of course we are worried about that - it’s the adjustment that happens, it’s what those customers are going to do to find the money in order to continue to make the payments.
“When we did our arrears and thematic review we said to the market: ‘you are going to have to get ready for this, you need to get your systems and processes in place in order to deal with the fallout because it will come’. Interest rates will go up.”
In contrast Charles Haresnape, Imla chairman and managing director, mortgages and commercial lending at Aldermore Bank, who was also on the panel, said he felt “absolutely” confident that systems were in place.
Mr Haresnape did acknowledge that some people “will get in to trouble and we will be looking to help those people”.
Speaking from the audience, Paul Broadhead, the Building Society Association's head of mortgage policy agreed with the FCA analysis, citing its own research which showed “30 per cent of people felt that rising interest rates were the biggest threat to the housing market.”
Peter Brodnicki, chief executive of the Mortgage Advice Bureau, said: “For new customers...each customer is completely different with different needs and requirements.
“We do need to make that clear to customers that have have got used to this low interest rate environment so we need to emphasis probably a bit more than we have ever done before.”
Throughout the debate, the Imla surveyed the audience, asking what will be closest to base rate in 12 months time.
It revealed that 17 per cent predict it will still be 0.5 per cent, 58 per cent predicted 1 per cent, 21 per cent predicted 1.5 per cent, 2 per cent predicted 2 per cent and 2 per cent of the audience predicted 2.5 per cent.
Unsurprisingly, considering the Bank of England governor Mark Carney’s recent comments, not one audience member believed it would be at 3 per cent.
