Borrowers could handle incremental rises in the base rate, says Moody’s

Borrowers will be able to handle incremental increases in base rate and arrears levels are likely to rise only slightly, according to ratings agency Moody’s.

Last month, Bank of England governor Mark Carney said the Monetary Policy Committee could begin thinking about raising rates at the “turn of the year”. The markets have predicted a rise in base rate in early 2016, the first since March 2009.

Moody’s believes both prime and non-prime borrowers would be able to adapt to higher interest rates, although it feels prime borrowers would be in a stronger position due to a high proportion of loans that are fixed, applicants with higher credit scores and stronger affordability models.

It predicts that arrears would not rise among prime borrowers if rates were to increase by 1 per cent and that arrears levels among non-prime borrowers would rise by just 1 per cent.

Even if rates were to rise by 3 per cent, Moody’s says, just 4 per cent more borrowers would face problems paying their mortgage.

In a report published last week, it said: “In our view, non-conforming and prime borrowers who are up to date on their payments will be able to absorb any negative cashflow issues and adjust their discretionary spending levels.”