North London households are likely to weather a 2015 rise in interest rates

Bank of England Governor Mark Carney

Bank of England Governor Mark Carney - Credit: PA Wire/Press Association Images

Most mortgage holders could afford a rise in interest rates next year, so long as incomes also rise by 10 percent, according to the annual survey of household finances by the Bank of England.

Interest rates have been at a historic low of 0.5 pc since 2009 but the report found that if they rose by 2 pc, 480,000 borrowers would struggle with their monthly mortgage payments, an increase from 1.3 pc to 1.8 pc of households. If pay stays the same, the figure rises to 660,000.

Those who are most in danger of falling into mortgage arrears are people who spend more than 40 pc of their gross income on borrowing.

Bank of England governor Mark Carney’s neighbours in north west London should be in a stronger position than others thanks to the dramatic increases in property prices in the area over the past few years.

Colin Payne, associate director of Belsize Park-based Chapelgate Private Finance said: “The most susceptible group will be those first time buyers that have only experienced having a mortgage with a record low bank rate of 0.5%. However, these borrowers typically put down a lower deposit, resulting in lenders charging higher mortgage rates.


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“Any increase in rates will be less of a shock for these borrowers compared to those that had high deposits enabling them to take advantage of record low rates.

“In addition, home owners in NW3 or NW6 have seen record capital growth from their properties so any borrower who put down 15% two years ago and is paying over 4% now is likely to be able to switch to terms below 2%.

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“This means that any future increase in interest rates will be comfortably affordable.”

Mr Payne also points out that most living costs are the same for all borrowers, so homeowners in north London, who are typically high earners will have higher disposable income to accommodate any interest rate increases.

The average outstanding mortgage for UK borrowers is £83,000, while the average annual pre-tax income for mortgage holders is around £43,000.

chapelgateassociates.com

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