One in four mortages 'at risk' when rates rise

It said the two million "at risk" borrowers largely comprised those who took out loans before the financial crisis that appear risky in hindsight, such as high loan to value, or high loan to income mortgages. Those who fell into arrears during the economic downturn and those who took out self-certified mortgages before 2009 are also likely to be at risk.

UK household debt - most of which is mortgage debt - stands at £1.5 trillion, nearly one and a half times household income. It is predicted to rise to £2.2 trillion by 2018.

The Bank of England is widely expected to start increasing rates from their record low of 0.5pc by the end of this year as the economy picks up steam.

It has said it will implement the increases only gradually, and is expected to slowly nudge interest rates up to 3pc over the next four years.

However some economists have warned that if the Bank of England waits too long to increase interest rates, it could be forced into sharper rate hikes to keep a lid on inflation.

Last week, official figures showed the inflation rate jumped to 1.9pc in the year to May, compared with 1.5pc a month earlier. While the increase was partly driven by one-off factors, some economists said it showed that inflationary pressures, and the case for a rate rise, are growing.

The Resolution Foundation said that although a rate rise would be gradual there was a "compelling" case for acting while there is still a "window of opportunity".

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