House owners and buyers with mortgages in today’s market should budget to ensure they can “have enough headroom” for a rise in interest rates of as much as three percentage points.
That is the view of Bank of England governor Mark Carney who returned to the subject of preparing for post-Brexit shocks to the housing market when he answered questions from MPs on the Treasury Committee.
Asked by Labour MP Wes Streeting how homeowners should prepare for possible uncertainty - especially if they had not directly experienced interest rate rises in the past - Carney returned to a subject he explored last week.
He told MPs that owners or buyers with a mortgage should be able to cope with a rise in interest rates of three percentage points and "have enough headroom" to ensure they can keep making repayments if times become more difficult.
He said this was already factored in to many banks and building societies, which had modified borrowers’ ‘stress tests’ to take account of rises in interest rates.
Ironically, speculation continues to mount that tomorrow the Bank of England’s financial policy committee may announce a cut - not a rise - in interest rates, in a bid to inject a stimulus into the wider economy, following the UK’s decision to leave the EU.
Carney’s appearance before MPs also served to distance the problems currently afflicting commercial property funds with anything which may impact the residential sector. Seven funds have been temporarily suspended to avoid mass withdrawals by investors.
"We did flag these [commercial property funds] risks in 2015," said Carney, who added that such funds were at "an extreme end of a more general issue … there has been a general trend for funds that have daily liquidity (requirements) to invest in illiquid securities … like emerging market debt."
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