After recent claims that interest rate increases would lead to a ‘tsunami’ of repossessions across the UK, the governor of the Bank of England has spoken out to express his concerns. Sir Mervyn King, the governor of the central bank, said that these claims, which were made by Richard Banks, the chief executive of UKAR (UK Asset Resolution), were exaggerated.

Whilst claims were made that there would be a wave of repossessions resulting from any rate increases King said that interest rates were set to remain low for the foreseeable future and that the claims over repossessions were being overdone. He said that even when interest rates did increase it would take time for any increases to be passed onto borrowing costs.

The governor also said that with the economy weak there were no plans in place to increase interest rates. He said that for interest rate increases to be considered the economy would need to be stronger and unemployment would need to be falling rather than increasing. He told the Treasury Committee recently that the economy at present was not strong enough to cope with an interest rate rise.

UKAR, which holds mortgages that were once owned by Northern Rock, said that the fears over a wave of repossessions were so strong that they were contacting mortgage customers who were at risk of defaulting to ensure that they were staying on track with repayments.

Banks said: “You can see if you don’t do something about it, you can see a tsunami. If you don’t get into the hills you could get drowned by this. If you don’t manage this properly it could get very messy.”

However, King stated: “The reason we would raise interest rates would be in the context of a much stronger economy with unemployment falling rather than rising. It should also be the case that the interest rates that borrowers face should not rise as fast as the rise in bank rate.”