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Home Owners Threatened By Rising Interest Rates

According to the telegraph, more than seven million home owners are at risk of rising interest rates, the Bank of England warns today, as it says people need to start paying off their debts to avoid getting into difficulty as repayments increase.

In its Financial Stability Report, the Bank says that two thirds of borrowers are now on floating interest rate deals and the proportion is rising. If rates go up next year, as some analysts suggest they will to combat rising levels of inflation, these home owners will see an increase in their monthly mortgage payments.

More could find themselves unable to afford their repayments, the Bank's report warns.

Often, people automatically end up on their lender's standard variable rate once the term of their initial fixed-rate deal has expired and they are unable to find an alternative affordable loan elsewhere.

There are also some home owners who have made the decision to stay on their lender's standard variable rate as it is cheaper than remortgaging or because they are unable to remortgage due to tough lending criteria imposed by banks.

The Bank goes on to warn that a rise in rates could result in more home owners being unable to afford to repay their loans. It says: "Given current levels of debt, UK banks might face higher defaults if interest rates were to rise rapidly from current levels or if income and employment were to fall."

The Bank of England is under pressure to increase the Bank Rate from its historically low level of just 0.5 per cent amid a jump in inflation. The Consumer Prices Index, the Government's preferred measure of inflation, rose to 3.3 per cent in November, up from 1.9 per cent a year earlier.

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