Mortgages  

Homeowners can cope with interest rate rises

The chief economist for Deloitte said a recovery in incomes should counteract any effect a potential rise in interest rates would have on incomes, but warned that an increase in inflation would be a “nightmare outcome”, which could force the Bank of England to raise rates sharply.

He said savings rates had recovered after a long period of decline, while borrowers were unlikely to see any base rate rises fully translate into higher mortgage costs.

Mr Stewart said: “During the downturn the spread between base rates and mortgage rates widened as lenders tried to bolster their margins.

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“As interest rates rise this spread is likely to narrow, meaning that mortgage rates are likely to rise at a slower pace than the Bank’s base rate.”

He said consumers should also be helped by a recovery in incomes, with the Office for Budget Responsibility forecasting household incomes rising by an average of 3.6 per cent a year for the next five years.

Adviser view

Mick Mullings, director of Leicestershire-based mortgage broker The Mortgage Mart, said: “I do not think any increase in the base rate will have too much of an effect, perhaps only for the mortgage prisoners with poorer credit scores. Rates have to go up at some point.”