Most UK mortgage borrowers can cope at current interest rates and warnings of a housing crisis are overblown, according to a top Bank of England official.

David Roberts, chair of the court of directors and a former chair of lender Nationwide Building Society, told a House of Lords committee that “some of the press headlines are a little bit over where my own judgment would be about what I think could happen – or quite a lot over.”

Economists and consumer finance champions have warned of a mortgage “time bomb” that will detonate a recession as borrowers refinance at rates as high as 6%. Resolution Foundation, a think tank, has estimated the average UK mortgage will cost £2,900 (£3,700) a year more in 2024 than today.

The rocketing cost of home loans is fast becoming a key political battleground. With an election expected next year, the opposition Labour Party has branded it “the Tory mortgage penalty” and members of the ruling Conservative Party have called for tax relief on mortgage interest to ease the burden on households.

Contract Variations

Chancellor of the Exchequer Jeremy Hunt has rejected all calls for fiscal support but he will meet major lenders on Friday, when he will tell them to use the “forbearance” arrangements agreed with the Financial Conduct Authority earlier this year.

Those include “contract variations” that allow banks to extend mortgage terms beyond retirement age and switch from repayment to permanent interest-only deals. Hunt may even urge lenders to use a combination of the two.

To ensure borrowers’ credit ratings are unaffected, lenders can provide forbearance before a customer has missed a payment.

Roberts told the Lords’ Economic Affairs Committee that confidence should be taken from the fact that “the vast majority of borrowers have been stress tested at 6% or 7%, certainly 5%.” He added that fixed-rate terms will have given many households time to prepare.

“Consumers and businesses are not stupid. They’ve seen the stresses coming. They are able to take actions within their own discretion to change their expenditure patterns or income patterns,” he said.

Roberts added that the outlook was “very different from the financial crisis, very different from 1992” when the government briefly committed to 15% interest rates in an unsuccessful attempt to keep the UK in the European Exchange Rate Mechanism.