Rise In Interest Rates Set to Increase Pressure on Homeowners
Homeowners are likely to find their mortgage repayments rise as the Bank of England are widely expected to raise interest rates for second time in two years, after August’s hike in rates.
Interest rates are likely to rise from 4.75% to 5%, affecting the UK’s millions of homeowners. A rise on credit cards is expected early next year placing the further financial pressure on those who are in debt through their mortgages, credit cards and loans.
Economists believe that as The Bank’s Monetary Policy Committee (MPC) endeavour to control rising UK inflation, there will be a further rise in interest rates next year, with February being the likely month.
As economist surmise as to whether there will be further rises, Philip Shaw of Investec Securities said: " A 0.25% hike in official rates to 5% looks virtually unstoppable on Thursday. The real debate is where rates head beyond November.
" The MPC will need a dose of soothing inflation news to calm its nerves if rates are going to climb no further,” he added.
Mr Shaw added that despite seeing 5% as the peak he is now less confident about this now due to concerns over rising inflation.
"We believe that this will probably happen. Indeed our main case view is that pay deals will stay low, the US economy will show few signs of picking up again and that UK consumer trends remain uncertain.
"But we cannot deny that there is a risk that rates rise to 5.25% and possibly beyond if the MPC does not like what it sees on the inflation front, and although our central case remains that 5% will prove to be the top of the cycle, we are less confident now that this will be the case," added Mr Shaw.
With unprecedented levels of personal debt and individual bankruptcies, these rises will heap further strain on household finances as homeowners and borrowers in the UK struggle with repaying their mortgages, loans and credit cards.
According to Government figures released last week, a record 27,644 people declared themselves insolvent during the summer, up 55% on the same period last year. Insolvencies in the UK look like hitting 100,000 for the first time, by the end of 2006.
Alisdair Milton
6th November 2006
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