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Could you cope with a rate rise?

Monday, December 08, 2014

Economists at the Bank of England have said that the majority of mortgage borrowers could cope with a 2% increase in interest rates.

The Bank’s latest quarterly report found that assuming incomes rise 10%, just 4% of mortgage holders would need to take action if interest rates rose to 2.5% from their current 0.5% historic low.

The report stated that under these circumstances, only 1.3% of households “would need to take some kind of action” with regards to spending due to higher mortgage costs.

However, if incomes remain unchanged, 37% of borrowers would need to take action if rates rose, but this figure doesn't exceed previous peaks.

Compared to a year ago, fewer borrowers say they would be affected on both income measures.

The report also found that the average borrower would reduce their spending by 0.5% if interest rates rose by 2%.

The Bank says:

“Overall, these results do not imply that increases in interest rates from their current historically low level would have unusually large effects on household spending.”

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