Will further interest rate rise slow down mortgage activity
In August 2006 the Bank of England increased the base interest rate to 4.75 percent from 4.5 percent, a rise of a quarter of a percent. This was followed by a further interest rate rise in November 2006, where the interest rates were put up by the Bank of England by a further quarter of a percent, taking the rate of interest to five percent. On top of this house prices in the UK continued to soar in the latter part of last year, with the rise in property values claimed to be the highest in a number of years.
Yet, despite all of this, figures showed that mortgage lending in November 2006 was at its highest in some time, and the rising house prices coupled with rising interest rated did not seem to be putting consumers off when it came to borrowing money in order to purchase properties. In addition to this figures showed that borrowing against home equity was also rising, with many people whose property value had shot up deciding to borrow money against the rising equity that was tied up in their home.
Many experts now think that the Bank of England will enforce another interest rate rise early this year, which could help to cool the economy, but others wonder whether, based on the lack of impact the rises had on borrowing last year, whether this will actually happen.
One economist stated: "It is too early to judge whether or not November's further increase in interest rates will have a significant dampening effect. We suspect that with so many people stretched to the limit in buying a house, even a modestly small cumulative rise in interest rates will ultimately have a substantial dampening impact on housing market activity."
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