Borrowers Could Handle Rate Rise, Says BoE

Home borrowers could handle rate rises, according to the Bank of England.

Gradual increases would not have "unusually large effects" on household spending, it said.

The bank does warn a rate rise to 2.5% would see the number of families struggling to pay their mortgages rise to 660,000 if wages stay the same.

But the Governor, Mark Carney, has repeatedly stated that when rate rises come they will be gradual and over time.

The Bank of England said: "Overall, the evidence does not suggest gradual increases in interest rates from their current historically low levels would have unusually large effects on household spending."

Yet in research, the Resolution Foundation think-tank finds that 2.2 million working households in Britain with below-median incomes are spending a third or more of their disposable income on housing, leaving an average of just £135 left over each week for other necessities.

And MPs have warned that some borrowers will have overstretched themselves when taking advantage of the interest rate, which has been at a historic low of 0.5% since 2009.

Treasury select committee chairman Andrew Tyrie said: "Interest rates have been so low for so long now that some might conclude this is the new normal. They shouldn't."

Older people are in line to benefit from any increase as they are more likely to be savers.

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