The Bank of England is warning that many households will struggle to meet their rent or mortgage commitments if interest rates rise as much as expected.

It says that currently around 1.7 per cent of households – or 475,000 – are likely to experience repayment difficulties. 

It defines that as spending over 70 per cent of take-home pay on rent or mortgage commitments and essentials.
And it warns that number will rise to 2.8 per cent – or around 800,000 households – by the end of next year.

“Rises in the cost of living and interest rates will increase pressure on UK household finances and make households more vulnerable to shocks” says a statement from the BoE’s Financial Policy Committee.

And it adds that some households will have to make significant personal spending cuts.

But it says more home owners are now on lower Loan To Value ratios than during past downturns.

“This reduces the risk of them defaulting on debt and banks are now required to be flexible in their response.”

The BoE forecasts that some 1.7m households – out of 11m with mortgages – are likely to refinance their loans in the coming year, moving onto much higher rates.

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