Cheltenham & Gloucester warns that a rise in the rate by a quarter of a point will mean that average families could spend nearly half of their take-home pay on mortgage repayments.
Managing director of C&G, Jon Pain, said: “Despite the improvement in the index in the first quarter, affordability is likely to get significantly worse later in the year if, as widely predicted, interest rates rise in the fourth quarter.”
Figures for the warning were based on someone with average earnings buying an average priced property with a 20 per cent deposit.
Although the present interest rate is 4.5 per cent, a rise is expected by many experts, especially as other major central banks have raised their rates this year.
If so, this could have a serious effect on debt as repayment on loans and mortgages tied to the rate will increase, while property values could fall and affect people looking to release equity from their home.