16pc sensitive to small rate rise
In conjunction with HML the solicitors carried out sensitivity analysis on over 8,000 near prime cases to establish what impact an interest rate rise would have on affordability.
Broadly the analysis showed that the vast majority of customers (59%) could absorb an interest rate rise based on small progressive increases of 0.25% possibly over an 18 month period, up to around an increase of 1.5%.
However, it also found that 16% would be affected by even the smallest of rate rises.
The law firm also analysed the impact of the number of times a customer has been into arrears and then come out of arrears in the last 24 months.
A significant number of customers pay, then fall behind, and then manages to pay thus suggesting that they have the ability to pay overall, but may have specific challenges at certain times.
Rob Evans, partner at Moore Blatch, said: “Our own understanding based on the 1,000 or so cases that we have in the repossession data highlights, unsurprisingly, but none the less importantly, the fact that the further away from prime that you move, the greater the sensitivity to rate rises.
“A further and vital risk factor is the customer’s affordability, in particular the ratio of the mortgage payment to their unsecured balances.
“For example, those that have had an increase of greater than 50% in their unsecured credit balances in the last 12 months and conversely a reduction of 50% of their unsecured credit balances in the last 12 months.
“My personal view is that for these customers, once base rates hit 1% or more, the level of repossessions will start to rise. Once they exceed 1.5%, the figures could be significant.”