Mortgage borrowers will see their repayments double thanks to the Bank of England’s interest rate plans.
This is according to new research by Savills, commissioned by the Financial Times, which found that the average borrower will pay £3,600 a year more following interest rate rises.
Last week the Bank of England signalled that it expects interest rates to rise to 3 per cent. Yesterday Bank of England governor Mark Carney told the BBC that there will be a “new normal” base rate of 2.5 per cent when rates start to rise.
Markets now expect the first interest rate hike to come by the end of the year. Charlie Bean, the Bank of England’s deputy governor for monetary policy has said that he expects the base rate to rise to around 5 per cent within a decade.
According to the Savills research, the interest paid on household mortgage repayments will rise by £9.9 billion per year for every percentage point by which the base rate increases.
There is concern that rate rises could put many householders under unmanageable financial pressure. The Bank of England believes that some 8 per cent of homeowners with mortgages already have high repayments as a proportion of their total income.
Meanwhile mortgage approvals are expected to fall during the next three months, as lenders tighten their approval criteria on mortgages with a high loan-to-income ratio.
But the provisions of the controversial Mortgage Market Review have so far failed to subdue mortgage demand, according to the Bank of England.