Repossession figures spark fears over effects of rate rise
This was the lowest number of repossessions since H2 2006, according to the Council of Mortgage Lenders. However, mortgage brokers are concerned that even a small rise in the Bank Base Rate could see many homeowners hand back their keys.
Jonathan Harris, director of mortgage broker Anderson Harris, said: “There are still tens of thousands of homeowners being repossessed each year which begs the question: what will happen when interest rates do start to rise and how will people cope?
“We suspect that when it comes to their finances there are many people teetering on a knife edge and rate rises could easily push them over.”
Speaking to BBC Radio this morning, economist and member of the Monetary Policy Committee David Miles said that as long as inflation remained below the Bank’s 2% target the Committee was not “going to be pushed into raising interest rates sharply”.
But Miles warned that mortgage lenders were likely to charge a higher margin over Bank Base Rate on products going forward than they had in the past.
While employment might be rising, wages are not, according to a report out this week. UK workers earned less in Q2 this year than they did in the same quarter last year. Mark Carney said the sluggish growth in wages was due to slack in the economy and as a result the Bank may take longer to increase the cost of borrowing.
Richard Sexton, director of e.surv chartered surveyors, said the MPC’s gradual approach to a rate rise should offer a “further reprieve for struggling borrowers”.
He added: “Linking the rise to real wage growth is also a smart move, otherwise a rise in costs before a rise in wages could see borrowers falling behind on repayments again.
“In the meantime, new regulation has been designed to ensure any new borrowers are properly prepared for a Base Rate Rise and aren’t lured in by the false certainty low interest rates promise.”