It was announced last week that The Bank of England will maintain the Bank Rate at 0.5%. This bank rate has been at the historic low since March 2009 and Mark Carney, the Bank of England Governor has said that an interest rate rise is likely to be gradual.
The Bank of England has indicated that home owners could cope with a rate. Statistics from the Bank’s Annual Survey of Household Finances illustrated that just 4% of mortgage holders would need to take action if interest rates rose to 2.5% from their current 0.5% low. This calculation however, assumes that there is a 10% rise in household incomes. The survey also stated that if incomes did not rise, 37% more mortgagers would need to act in response.
Further to this, The Bank commented that an interest rate hike would increase the number of households with mortgage repayments to more than 40% of their gross income, therefore placing them at greater risk of falling into arrears. It is also worth to mention that only a third of households actually have a mortgage in place.
Although people are looking for a significant hike in interest rates, it is evident that this will not be any time soon and when they do finally increase, it will be at a very gradual pace.