Homeowners in limbo as interest rate decision nears
Next week, the Bank of England will announce whether interest rates are going up, coming down or staying the same. The smart money is on a rate hike of 0.25 per cent, although it is impossible to be certain. Back in December, it was widely held that rates would still stay on hold the following month, but the bank did its own thing and surprised everybody by raising the cost of borrowing.
Anyway, what I'm trying to say is that nothing is certain when it comes to money and economics, but this has not stopped mortgage lenders pulling their best products and replacing them with more expensive ones. Nor has it stopped price comparison sites and other speculators lamenting the demise of the cheap fixed-rate loan. Indeed, their repeated cries for borrowers to take action now and remortgage to a good deal have sounded something like a call to arms in recent weeks.
In addition to this month's rate rise, there are experts aplenty who expect rates to rise more than once after May, which means we could end the year with a base rate at 5.75 or six per cent. Last month, a group of economists wrote an open letter to our economic overlords suggesting that rates may have to rise to seven per cent next year to bring inflation into line.
However, more moderate analysts either believe this is unlikely or are unprepared to envision such a scenario, especially as it is a reminder of the boom-and-bust days under the Tories in the 1980s and early 90s.
You can't really blame people for getting into a tailspin about all this. Just a small rise in monthly outgoings could prove very difficult for some households, especially if they are already struggling with unsecured debt, council tax requests and energy bills. It is not surprising that many homeowners are taking a 'safety first' approach to their finances and signing up to a fixed-rate deal. At least this way they have the security of knowing their outgoings won't rise every time the Bank of England pushes up rates.
Despite all the excitement, the Council of Mortgage Lenders expects inflation to fall back to two per cent in a matter of months and has warned against pessimism in the market. In fact, some experts believe that the UK is near the peak of its current tightening cycle and that the interest rates will start to come down next year. If this is the case, then some brave homeowners may be willing to enter into a variable rate deal now, which could mean higher mortgage payments over the next few months and reduced payments when rates start to fall in 2008.
Over the past week or so, lenders and price comparison sites have been much less vocal about mortgages, an indication perhaps that we have entered the calm before the storm. The media are much more focused on the political implications of the May 3rd elections – a full week before the Bank of England announces its decision. The closer we get to the rate announcement the less point there is trying to predict the future, although it is fairly safe to say that until the bank decides one way or another, households across the country are in limbo.
Anyway, what I'm trying to say is that nothing is certain when it comes to money and economics, but this has not stopped mortgage lenders pulling their best products and replacing them with more expensive ones. Nor has it stopped price comparison sites and other speculators lamenting the demise of the cheap fixed-rate loan. Indeed, their repeated cries for borrowers to take action now and remortgage to a good deal have sounded something like a call to arms in recent weeks.
In addition to this month's rate rise, there are experts aplenty who expect rates to rise more than once after May, which means we could end the year with a base rate at 5.75 or six per cent. Last month, a group of economists wrote an open letter to our economic overlords suggesting that rates may have to rise to seven per cent next year to bring inflation into line.
However, more moderate analysts either believe this is unlikely or are unprepared to envision such a scenario, especially as it is a reminder of the boom-and-bust days under the Tories in the 1980s and early 90s.
You can't really blame people for getting into a tailspin about all this. Just a small rise in monthly outgoings could prove very difficult for some households, especially if they are already struggling with unsecured debt, council tax requests and energy bills. It is not surprising that many homeowners are taking a 'safety first' approach to their finances and signing up to a fixed-rate deal. At least this way they have the security of knowing their outgoings won't rise every time the Bank of England pushes up rates.
Despite all the excitement, the Council of Mortgage Lenders expects inflation to fall back to two per cent in a matter of months and has warned against pessimism in the market. In fact, some experts believe that the UK is near the peak of its current tightening cycle and that the interest rates will start to come down next year. If this is the case, then some brave homeowners may be willing to enter into a variable rate deal now, which could mean higher mortgage payments over the next few months and reduced payments when rates start to fall in 2008.
Over the past week or so, lenders and price comparison sites have been much less vocal about mortgages, an indication perhaps that we have entered the calm before the storm. The media are much more focused on the political implications of the May 3rd elections – a full week before the Bank of England announces its decision. The closer we get to the rate announcement the less point there is trying to predict the future, although it is fairly safe to say that until the bank decides one way or another, households across the country are in limbo.
Author: Richard Mather
1 comment:
This is quite disconcerting especially when I'm interested in buying a Cave for Sale in Spain. Maybe next year then; or get a Spanish mortgage.
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