PARLIAMENTARY WRITTEN QUESTION
Mortgages: Repossession Orders (12 July 2017)

The Treasury has not made an assessment of the potential effect of a rise in interest rates on mortgage possessions.

However, affordability requirements imposed by the Bank of England’s Financial Policy Committee (FPC) require lenders to conduct an interest rate ‘stress test’ on all new mortgage loans. The requirement ensures that all borrowers must be able to afford their mortgage repayments if, at any point over the first five years of the loan, their mortgage rate were to be 3 percentage points higher than the reversion rate (SVR) specified in the mortgage contract at origination.

In addition, the FPC also requires regulators to ensure that mortgage lenders do not extend more than 15% of new mortgages at loan to income multiples (LTI) at or greater than 4.5.

These measures insure against the risk of a significant increase in the number of indebted households in the case of an interest rate rise. For this reason, a rise in interest rates would not be expected to significantly increase the number of mortgage repossessions.