Brokers believe the market can cope with a potential 3 per cent rise in interest rates - although they admit some borrowers could struggle with repayments.
Ex-member of the Bank of England’s (BoE) Monetary Policy Committee Dr Andrew Sentance forecast a rate rise of 2-3 per cent in the first half of the 2020s during a speech at the Building Societies Association’s annual conference last week, raising fears homeowners could struggle to pay their mortgage debts.
Rates were cut to 0.5 per cent in March 2009 following the financial crisis and were lowered even further, to 0.25 per cent, in August 2016, as the BoE sought to limit the impact of the Brexit vote.
As a result, many people have been able to take out low-cost mortgage deals and have yet to experience a rate rise.
Ray Boulger, senior technical manager at John Charcol, described Dr Sentence’s estimate as within the range of mainstream thinking.
“I think the key is how quickly rates rise. If you are talking 2 or 3 per cent over 5 or more years, most people will not have a problem coping with that unless their personal circumstances have changed,” he explained.
“If you have taken out a mortgage over the past few years, there will have been affordability calculations on the basis of a 6.5 or 7 per cent rise. On that basis, people would not have a problem.”
Mr Boulger added that there could be a problem in the event of an economic downturn leading to a sharp rise in unemployment – but then the BoE would not increase interest rates.
Michelle Lawson, director at Portsmouth-based Lawson Financial, said: “I think the market will adapt because it always does, and people will potentially extend a term where they have to.
“The mortgages will have been stress tested if they have been done properly. We just need to rely on the fact that their circumstances have not changed.
“Rates only tend to go up if the economy is doing well. They will not put rates up if unemployment is high.”
But Mike Richards, director at London-based Mortgage Concepts Associates, said people may have been lulled into a false sense of security by years of low rates.
He added that people who are on variable rates and trackers may need to look at moving on to one of the longer-term fixes to provide added security.
“So long as people are sensible and have not spent all their available cash on other things they will be able to cope with it, but people who have spent up to their limit will struggle,” Mr Richards said.
These concerns were echoed by Dale Jannels, managing director at Horsham-based All Types of Mortgages, who said one third of mortgages have never been subject to a rate rise.
“We have a whole generation that would probably struggle because they have lived on the breadline,” he explained.
simon.allin@ft.com
