Britain's housing market shirks off banks trying to curb mortgage lending
Reuters

The Money Advice Service has revealed that nearly half of all homeowners would "really struggle to find the extra money" if monthly mortgage payments rose by £150 following an interest rate hike by the Bank of England.

According to the consumer finance advice service, which was created by the government in 2011, 47% of homeowners would struggle to make ends meet if the BoE raised rates from its record low of 0.5% to 2%.

However the survey of 3,007 mortgage holders, conducted between 22 July and 28 July, said one in five said they would find it hard to cope if there was any rate rise at all.

"Mortgage holders need to be more mindful of the fact that a rise in interest rates is widely predicted – even for those on a fixed rate, as their deal will come to an end sooner or later," said Nick Hill of the Money Advice Service.

The BoE is expected to raise rates in the first quarter of 2015 as UK house prices have rocketed off the back of a number of schemes that have allowed Britons to snap up properties with only a 5% deposit while the government stumps up 15% to make up the shortfall.

The Funding for Lending and Right to Buy scheme have largely been blamed for the surge in house prices.

According to the Office for National Statistics (ONS), the average price of a UK home hit £272,000 (€348,803, $440,455) in July 2014, a leap of 11.7% over the year. Higher house prices mean bigger mortgages.

"If people take some sensible, practical steps now, most will be able to cope with what the Bank of England has previously flagged as a likely 'baby steps' trajectory of rate rises, whenever they finally come," said the Council of Mortgage Lenders.

Meanwhile, house prices fell for the first time in 16 months, after the central bank and financial regulator took steps to curb the rampant market.

The Financial Conduct Authority has forced lenders to conduct stricter affordability tests on potential borrowers, to ensure they can make repayments in a number of difference scenarios, such as materially higher interest rates.

And the BoE has capped mortgage lending. Banks will only be able to comprise 15% of their net new mortgage lending out of loans worth 4.5 times or more the applicant's income.

These measures have been blamed for causing a Slump in the number of mortgage approvals for home purchases for August.