Bank of England: UK households can handle an interest rate hike

 
Chris Papadopoullos
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Official Figures Indicate Britain Is Heading Into Recession
The Bank said household finances were in better shape than a year ago (Source: Getty)

British households are well placed to handle an increase in interest rates, the Bank of England said today.

The Bank’s annual survey of 6,000 households compiled by NMG consulting found households were “in a slightly better position to cope with an increase in interest rates than they were a year ago”.

The survey revealed that if interest rates were to rise two per cent immediately, with no change in household incomes, then “an estimated 31 per cent of mortgagors would need to take some kind of action… down from 37 per cent in 2014 and 44 per cent in 2013.”

The Bank said that the share of households with mortgage debt that was more than five times their income – considered ‘very high’ – had fallen back and was now back to levels not seen since the 1990s. Meanwhile, households with mortgage debt between three and five times their income had fallen to early-2000s levels.

The share of mortgagors with high debt servicing ratios has fallen and is now close to an historic low, the survey found.

However, the Bank also warned that some households whose finances were especially vulnerable to a rate hike may also suffer from continued cuts in state spending.

According to the Bank, the survey suggested that fiscal cuts were “likely to continue to weigh on household spending” and that “there are some households who may be vulnerable to higher interest rates and who expect to be more heavily affected than average by further fiscal consolidation”.

The Bank's main interest rate has been at a record low of 0.5 per cent since March 2009. Some Bank officials have raised concerns that because rates have not moved for a sustained period of time, households and businesses may be unprepared for their eventual rise.

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