According to research carried out by mortgage servicer HML, rising interest rates could force 30,000 borrowers into over three months’ arrears within a year.

HML looked at past patterns in the Bank Base Rate and corresponding changes in mortgage borrower repayment performance. Looking at the period August 2006 to August 2007, when there were five Bank Base Rate increases of 0.25% at a time 30,000, among borrowers on variable rate deals, the percentage of mortgage accounts that were three or more months in arrears increased by 19.6% and the average arrears balance increased by 21% for arrears cases.

Currently 1.85% of UK mortgages are over three months in arrears. A 19.6% increase would push that figure to 2.12%, which HML calculates would mean another 30,000 borrowers in severe arrears within a year (defined as being over three months).

The Bank of England has strongly suggested that it will not put up the Bank Base Rate until unemployment falls from its current level of 7.7% to 7%.

HML believes that if unemployment continues declining at its current rate, it will hit 7% by the start of 2015.

Damian Riley, director of business intelligence at HML, said:

“Our analysis has shown the direct relationship between increa

“Given that the Bank of England has indicated that rates may increase in the not too distant future, our message is that this should be done with a note of caution. Lenders need time to understand the impact of account interest rate increases on their customers’ affordability and to help those who are struggling with a further reduction in their disposable income.

“By the start of 2015, on current trends we would expect arrears to fall by another 10% (relative). Any such fall could be 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.”