by Mark Johnston
There are thousands of homeowners in the UK at the moment who are struggling with their monthly repayments on their mortgages. But the Bank of England’s governor, Sir Mervyn King has commented that while these individuals are in trouble, they are hanging on and will not default.
Sir King said that home repossessions hype recently reported in the news is over rated and that these fears would remain unfounded as long as the UK interest rates remained low. He went on to say that the time was not right to raise interest rates and if there would be a rate rise in the future, it would take a little while for the increased costs to reach the average household and to feed into their borrowing costs.
Scaremongering from the head of the UKAR recently said that there would be a “tsunami” of homeowners to lose their homes once, not if, the Bank of England base rate was increased.
This said, Mervin King has said that the economy was not strong enough to cope with a rise in the base rate just yet. “The reason we would raise interest rates would be in the context of a much stronger economy with unemployment falling rather than rising.” He noted further that those deals that tracked the base rate would see significant increases in their monthly outgoings but that this would be slightly delayed. “It should also be the case that the interest rates that borrowers face should not rise as fast as the rise in bank rate,” he said.
For over two years, the Bank of England’s base rates has remained at a record low at 0.5 per cent.
Richard Banks, chief executive for the UKAR (UK Asset Resolution) said that there would be a “scary” number of homeowners being faced with defaulting unless lenders prepared the borrowers for the higher rates. I would argue that the readers of this site would know that if a tracker mortgage is taken out, you would expect high rates as well as low rates. I would suggest further that readers of this site would only take out mortgages that they could afford in the good times and the bad so why would lenders need to soften the inevitable blow of a rise in the base rate.
However Mr. Banks went on to say “You can see if you don’t do something about it, you can see a tsunami,” he said. “If you don’t get into the hills you could get drowned by this. If you don’t manage this properly it could get very messy.”
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