Continued interest rate hikes by the Bank of England could see people in Northern Ireland lose their homes, economist warns

The Bank of England is poised to unveil the biggest hike in interest rates for 33 years next week as the central bank continues its efforts to tame inflation, with most economists expecting a rise by 0.75 percentage points to 3% at the meeting of its monetary policy committee on Thursday November 3.

The rate set by the Bank of England informs what high street lenders charge for loans such as mortgages. The interest rate has already undergone seven successive rises as part of efforts to bring inflation under control.Dr Esmond Birnie, an Ulster University economist, told the News Letter that it’s possible rising interest rates could force some to hand their keys back."The obvious point is that if they [interest rates] go up again – and there have been seven increases in a row – that it will be tougher for people with mortgages,” he said.

"For the roughly one-third of mortgage holders who have variable rates they will jump, they will go up immediately. But even for what is about two-thirds of the approximate 220,000 mortgage holders in Northern Ireland – those on fixed arrangements – they will periodically go off a fixed arrangement because they are of limited duration. They will find very big jumps because their rates were maybe fixed a number of years ago in a much different, lower, interest rate environment.”

He continued: “The important question, and one that can't be definitely answered, is where this process is going to end. Are we heading towards a Bank of England interest rate which is going to be 5%, or 6%, or 7%? About a month ago, in the immediate aftermath of the mini-budget, the mood became very dark and the sense was that we were heading to a world of 6 or 7% Bank of England rates.

“I think now the feeling is, after a degree of stabilisation of government policy, we could see Bank of England interest rates settling at about 5% which would bring them back to where they were in the world before the banking crisis of 2007.

“A lot of this is about expectations and what we are used to. Particularly for people who entered the housing market in the last decade or so, this is all a great shock and is going to be sadly a very painful shock.

If you take a longer view of the past there is a sense in which interest rates weren't going to stay close to zero forever. That doesn't bring much comfort to people who are facing the struggle now, alongside food costs, fuel costs and energy costs, yet another demand on monthly budgets.”

Asked if this could mean large numbers of people in Northern Ireland losing their homes, Dr Birnie said: "It's possible. There will be some people who will find it very hard to pay, to service their debt. What we've seen, going back to the time of the banking crisis, banks generally exercise quite a lot of so-called forbearance - in other words various devices to give people mortgage holidays, or lengthening terms, and so on."