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Rising inflation could see interest rates hit 7.5%

According to some economists the interest rate in the UK may have to hit 7.5% in order to try and bring inflation under control.

This is a worrying piece of news for homeowners that are already struggling to keep up with the three interest rates that have been applied by the Bank of England since last August, taking the interest rate from 4.5% to 5.25%. Many homeowners have already been flocking to try and get fixed rate deals in order to try and avoid further interest rate rises.

Interest rates are expected to rise again later this week, with many experts predicting a rise of either 0.25% or 0.5%. According to many another interest rate will also come in the summer, which could mean more bad news for mortgage payers on variable rate loans. However, one expert, Tim Congdon, who used to work for the Treasury, claims that rates may have to hit up to 7.5 percent in order to try and bring inflation back in line.

With the Consumer Price Index breaking through the three percent barrier, and standing at 3.1%, Congdon states that they only way that this can be effectively dealt with is through further rises in interest rates. This is the highest that the CPI has been for a decade, and Congdon expects the figure to keep on rising unless something is done about bringing it back under control.

Mr Congdon stated: 'Inflation is back and it's going to get to 4% by the middle of next year. It's not as bad as earlier cycles, but it's nevertheless bad and it's going to end the usual way. Rates will have to go to 6 to 6.5%, may have to reach 7.5%.'

An expert from London and Country mortgage brokers stated: 'People who are buying a home have got to look at the size of their mortgage from the point of view of interest rates probably going up again. Think about affordability of the mortgage not just today, but in the near future after one or even two more interest rate rises.'

Tom Smith
10th May 2007


More Information:

  • Why Does The Interest Rate Of Your Mortgage Change?
    The biggest difference between a mortgage and other types of loan is the fact that the interest rate changes throughout the term of the loan. Why is this? And which type of interest-rate arrangement is best?
  • Mortgage Terms: What is the Best Length?
    How long would you like you mortgage to run? The simple answer would be as quickly as possible, but not everyone can, which means higher repayments and more strain on the household budget.
  • Mortgages – What Will Be Next?
    Maybe some forty years ago mortgages were very solid things that you took out: you would stick with the same company for the entire period of the loan and you could find fixed rate deals that would also last the full twenty five years.


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