Financial “comfort zones” hit by rate rises

Ray Boulger, from mortgage adviser John Charcol, said that the Bank of England’s surprise decision to increase the base rate to 5.25 per cent is likely to result in a rise in the number of people falling into arrears.

He said that this was particularly problematic for consumers borrowing large amounts relative to their incomes.

“In terms of mortgages, people who have a fixed-rate mortgage won’t be affected immediately, although if they’ve come to the end of the fixed rate they will be,” said Mr Boulger.

“People who are most likely to suffer difficulties are anyone with a variable rate, but particularly anyone who has high mortgage repayments compared to their income and has borrowed close the maximum of their comfort zone.”

An Alliance & Leicester spokesman has advised homeowners to be ready for another rise in the cost of borrowing, although rates are unlikely to increase to more than 5.5 per cent.