Mortgages  

30,000 at risk from base rate hike: HML

The mortgage analyst firm’s data suggested that the rate rise, expected within a year, will be exacerbated by unemployment, which is expected to drop to 7 per cent by 2015.

As of September this year, unemployment stood at 7.7 per cent, according to Office for National Statistics data.

The combined effect of rate rises and unemployment would reverse progress made in improving mortgage arrears rates.

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Damian Riley, director of business intelligence for HML, said: “By the start of 2015, on current trends we would expect arrears to fall by another 10 per cent.

“However, any such fall is at risk of being negated following a modestly increasing interest rate, meaning the overall state of arrears in the mortgage market in 2015 could return to something like today’s level.”

Shortly after taking up office this year, Bank of England governor Mark Carney said the base rate would remain at 0.5 per cent until unemployment drops to at least 7 per cent, unless inflation were to rise at a faster-than-desired pace or the low rate threatened financial stability.

Mr Carney also told the City last week that he was firmly behind the UK banking sector.

John Grimbaldeston, director of products and marketing for HML, said: “Lenders need to consider how they would address potential increased mortgage arrears on their portfolios, including engaging with borrowers to identify alternative repayment options.”

Bhupinder Anand, director of London-based Anand Associates, said: “Have people stress-tested their borrowing capacity and ability to repay the loan if interest rates rose by 1 per cent, or even doubled – which is not unlikely?

“There is a lot of naivety. Many people would have stretched themselves to get onto the housing market, but what if the rate doubles? Borrowing to the hilt at low interest is a recipe for disaster because rates can only go one way.

Month

Relative change in position from August 2006

% accounts more than 3 months in arrears

Average increase of CMS

Arrears balance

August 2006

N/A

N/A

N/A

September 2006

-2.25%

2.34%

0.68%

October 2006

-3.05%

3.02%

1.11%

November 2006

0.38%

3.94%

4.52%

December 2006

2.74%

5.98%

0.74%

January 2007

4.28%

6.14%

7.83%

February 2007

4.67%

7.96%

9.83%

March 2007

8.67%

9.23%

3.14%

April 2007

15.52%

8.97%

14.52%

May 2007

16.65%

9.23%

16.03%

June 2007

17.56%

11.00%

16.79%

July 2007

19.43%

10.99%

18.69%

August 2007

19.66%

12.88%

21.32%