How rising inflation and interest rates could lead to your home being repossessed


Despite the Bank of England opting to keep the rate at an historic low, there’s little chance it will stay at the same rate for much longer. Inflation is expected to rise to as much as five percent next year – so consumers need to ask themselves not when the rate will change, but how will they cope with the rate change.

Predictions from economic experts were adamant that the interest rate was going to rise by 0.15 percentage points to 0.25 – but that didn’t happen.

This is already being reflected in the mortgage market, meaning borrowing costs are going up regardless of the choices made by policy makers.

The next rise is expected either in the new year or just before Christmas – and even though the increase is expected to not exceed 1.5 percent, it could still see household costs rise significantly.

George Vessey from Western Union Business Solutions said: “It appeared as if the Bank of England was guiding the market to a rate hike, which is why the pound has taken such a nosedive this afternoon following the decision to instead keep rates at record lows.

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“The key takeaway is that the Bank of England admits the limitations of tightening monetary policy on trying to tame inflation – especially when it is derived from supply-side shocks.

“Bottlenecks and soaring energy prices are driving producer prices higher, which are being passed onto consumer and restraining economic growth.

“It was acknowledged that raising interest rates too quickly may not only fail to contain inflation, but also undermine the already fragile economic recovery whilst squeezing household incomes further.”

Further rises on top of the Christmas/new year rise could push the interest rate up to 2.5 percent.

For example, a buyer with a 20 percent deposit on a home worth the new average of £264,000, would pay £845 per month with an interest rate sitting at 1.5 percent.

Pushing it one whole percentage point to 2.5 percent would make their monthly bill jump to £947 per month – an increase of more than £100, or £1200 per year.

The ebbing and flowing of inflation and interest rates is par for the course, and they certainly aren’t as high as they used to be – those purchasing property in the 1980s will remember interest rates as high as 15 percent.

But the overall landscape is different now. Property prices back then were low, in comparison with the huge increase overall in prices, as well as the boom provided to the market by the shift in attitudes and economic policies brought about by the coronavirus pandemic, it’s actually proving much more expensive to buy a house than ever.

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House prices are barely expected to drop over the course of the new year and into the summer of 2022, but growth is expected to flatline, resulting in a big problem for recent buyers.

Due to the interest rate rise forthcoming at the end of this year, the ability to remortgage to a lower rate will soon be lost for homeowners – something experts believe could be devastating.

Capital Economics has forecasted even a rise to 0.25 percent interest would trigger 12,000 people to lose their homes across UK.

Prior to the Bank of England announcement, the consultancy said it expected the share of Britain’s 11 million borrowers facing repossession would rise by 50 percent this year, from 0.02 percent to 0.03 percent.

When the interest rate rises again next year, 0.04 percent of those relying on the bank would hand back their keys every quarter – equating to a startling 4,400 homeowners.

Andrew Wishart, of Capital Economics, said: “There’s no doubt previous increases in the Bank Rate have been a critical driver of housing market downturns.

“We expect further house price growth in the near term but a rise in mortgage rates should put the brakes on from the second half of next year.”



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