Base Rate  

Bank warns base rate rise could hit families hard

Bank warns base rate rise could hit families hard

The Bank of England is worried families would struggle if the base rate hits 2 per cent.

Minutes of the most recent financial policy committee meeting, held in the middle of March and chaired by the Bank of England governor Mark Carney, showed the bank is concerned by the "scale of vulnerabilities" of households throughout the UK, despite the fact that mortgages are only 7.6 per cent of household income, compared to 9 per cent before the financial crisis.

The reason for this is household debt, the Bank said, warning that it was important "not to take too much comfort" from comparisons to mortgage finances before the crisis, because of the other vulnerabilities in family finances, including consumer debt.

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The minutes suggest at just 2 per cent, well below historic norms, families would struggle to pay their home loan.

This might mean that base rate increases are more gradual than expected.

Mr Carney and his colleagues increased the base rate from 0.25 per cent to 0.5 per cent in November.

The rate is currently expected to move to 0.75 per cent in May.

Steve Seal, director of sales and marketing at Bluestone Mortgages, said the Bank is clearly waiting and being careful in ensuring rates are increased at the optimum time.

He said the Bank's decision to hold the base rate this month should act as an encouragement to borrowers who have thought about remortgaging, and for those who are looking to reassess their future finances.

Craig McKinlay, sales and marketing director at Kensington Mortgages, said after just one rate rise since 2009, it is all too easy to think the era of lower-interest rates will continue.

Mr McKinlay said the growing noise around a potential rise should act as a wake-up call for those borrowers who haven't yet remortgaged to speak to a broker to secure a deal that is beneficial to them.

He said: "There are still plenty of great deals out there on the market and speaking to a broker can put borrowers, including those with more complex circumstances such as the self-employed, in a good position to find a mortgage that fits their needs."