Interest rate rise 'could cause thousands of mortgage arrears'

House keys

Raising interest rates by 1% could push thousands into mortgage arrears, according to the head of the "bad bank" that holds the loans of Northern Rock and Bradford and Bingley.

UK Asset Resolution's chief executive, Richard Banks, says a rise on that scale could mean 22,000 would slip behind with repayments.

He expects rates to rise this year.

UKAR is running down the loans of Northern Rock and B&B, which collapsed in the 2007-08 financial crisis.

'Baby steps'

Mr Banks said: "If interest rates rise the impact on our customers depends on how quickly they rise."

He said would be better if rises were "small and often over a long period", rather than sudden, very large increases.

His comments echo those of the outgoing deputy governor of the Bank of England, Charles Bean, who recently said the benchmark UK interest rate could rise to 3% in a few years' time.

He said there was a case for "moving in baby steps to avoid making mistakes".

Mr Bean suggested the Bank of England's benchmark rate was likely to reach 3% between 2017 and 2019.

The rate has been at the historic low of 0.5% since March 2009 and the Bank's governor has indicated it will not start rising before next spring.

At the last meeting of the Bank of England's Monetary Policy Committee (MPC) on 7-8 May, members appeared to be shifting their opinions towards raising interest rates.

Debt repayments

Last year, UKAR saw the number of customers in mortgage arrears fall by 15,500, or 39%, as borrowers benefitted from continuing low interest rates.

UKAR has 467,000 customers and 529,000 mortgage accounts.

The organisation also said it was making good progress on repaying its debts.

It said it had repaid the government £10.4bn so far, and expects to repay the remaining £38.3bn owed in full.

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