City Boom Brings Mortgage Misery
August 20, 2007
The UK’s financial market is booming and brings great opportunities for the country, but it can bring problems too. The good news is that increased activity in the City brings wealth, jobs and revenue from taxation.
The bad news is that it sends a lot more money to slosh around in the economy and that increases personal spending. This has shown itself in the London property market which has continued to boom. Some economists feel that this will mean another interest rate rise as the Bank of England’s Monetary Policy Committee continues to grapple with inflation.
The Item forecasting group uses the same computer model for the economy as the Treasury does and it suggested that interest rates might well have to be taken above the 6% which many have been forecasting as the peak for some time now. Item’s economist, Professor Peter Spencer said he didn’t know where the top of interest rates would be now.
The result of this will be further mortgage misery for millions of households who reap no benefit at all from the bonuses in the City. Spencer said that public confidence in the MPC was being strained by the current situation, ad the household bills of those with modest incomes are being pushed higher and higher by inflationary pressure being created elsewhere.
Most experts now expect the base interest rate to reach 6% by the end of the year, and possibly as soon as September. The report from Item says: “Despite the buoyancy of the housing market and the High Street so far this year, we are confident that tighter monetary policy will begin to subdue consumer borrowing and spending in the second half of the year.’
It is expected that figures due out this week will show the house price boom is cooling. Figures from property website RightMove are due out and expected to show a reduced annual price rise from June’s figure of 13.2%, and the figures for June’s mortgages from the British Bankers’ Association are expected to be much lower than they were last year.
Meanwhile Governor of the Bank of England Mervyn King says he is surprised that house prices are not included in the calculation of inflation and speculated that the CPI might include house prices “one day”. Mortgage repayments are included in the Retail Price Index (RPI) which used to be the official measure.
Mr King and his fellow members of the Monetary Policy Committee (MPC) at the Bank is tasked with keeping inflation as close to the Government’s 2% CPI target as possible. The MPC has raised the base interest rate five times in the last twelve month in an attempt to control inflation, which has been over 2% since May 2006.
Critics of CPI say that because it excludes the cost of mortgage repayments and the cost of houses it remains artificially low. Commentators say that a property market bubble has been created as people buying houses can over-borrow as a cheap loan. RPI includes mortgage repayments and stands at 4.4%.
Most experts expect interest rates to go to 6% soon – and they could higher. For homeowners already struggling to meet monthly repayments, any further increase to their mortgage interest rate will be a body blow.
Alan Wright
20th August 2007
Recent news:
- Rising number of consumers in serious debt
- Great life insurance reduction for vegetarians
- HIPs Are Here
- Sub-Prime Mortgage Problems In The UK
- Check out your travel insurance before you leave home
Related Articles
- Is Britain’s debt problem worse than we realize? According to a recent report collective debt levels in Britain could actually be around £100 billion more than most people realize. According to some industry professionals
- Insurance premiums to be affected by flood costs This June in the UK was one of the wettest on record, with torrential rain and bad weather causing severe flooding and vast amounts of
- Repossession levels rising with interest rates The series of interest rate rises in the UK over the past twelve months have taken their toll in many areas, and as predicted by
- Charity confirms continued rise in debt enquiries A debt charity in the UK has confirmed that debt related enquiries have continued to rise over the first half of this year, reflecting the
- First Direct offers good customer service The Internet banking arm of HSBC, one of the UK's leading banks, has been under fire for a number of reasons recently. Like all other
Comments
Got something to say?