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Base Rate Held But Predictions Of Further Increases Remain

Aug 18, 2007
The Bank of England has voted to maintain interest rates for this month.

Under the move, the Bank's monetary policy committee (MPC) has decided to keep the base rate at 5.75 per cent. Although the news is likely to be welcomed by those homeowners with variable-rate mortgages as their mortgage repayments will stay consistent over the remainder of August, a number of industry experts have warned that consumers could face increased pressures on their finances over coming months as the MPC may increase the base rate again before the end of this year.

Andrew Montlake, partner at mortgage broker Cobalt Capital, claimed that despite interest rates being held this month many Britons are still set to face an increase in secured loan repayments in the autumn as they come to the end of their fixed-rate deals. He suggested that the MPC will increase the base rate to six per cent by the end of 2007 in a bid to curb inflation, as the outlook for borrowing remains "black and white at present".

Meanwhile, Stuart Glendinning, managing director for price comparison website moneysupermarket, reported that today's decision will provide borrowers "with a little more breathing space" as they continue to struggle financially following the MPC's five rate rises over the last 12 months. He claimed that over the period of time, homeowners on an interest-only 150,000 pounds tracker mortgage have seen their annual repayments rise by 1,875 pounds. The director also asserted that in the last year, interest-only mortgage repayments have surged by 28 per cent - more than 11 times the rate of inflation.

Head of corporate and specialist lending at Cheltenham & Gloucester Mark Blackwell claimed that the MPC is continuing to judge the effect of recent rises in May and July on consumers' finances. The expert reported that due to base rate hikes retail sales, credit uptake and the housing market have begun to slow down. Mr Blackwell suggested that the committee is set to adopt a "wait and see" approach over the coming months as the full impact of interest rate increases are still to be felt.

Commenting on the MPC decision to hold the base rates, Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors, claimed that "it is hardly a surprise that the MPC chose to sit on its hands at this week's meeting". He also stated: "Indeed, our suspicion is that the Bank will want to hold fire on further policy tightening until there is more convincing evidence that the housing market is able to shrug off previous interest rate hikes. This will provide some welcome respite for homeowners, many of whom are already facing significant increases in their mortgage costs over the coming months".

Last month, findings by Alliance Trust indicated that households "continue to borrow big and spend bigger" despite the impact of increasing various monetary pressures over recent years. In addition to rising interest rates, real earnings growth was said to be at its lowest level for a decade. Meanwhile, families' finances were reported to be "squeezed" as a great proportion of their pay goes towards servicing debts accrued on personal loans and credit cards.
About the Author
Steve Smith Writes for 1 Stop Finance Shop UK. Our visitors can apply online for all types of loan. From bad credit tenant loans, to secured personal loans. Visit our site today: http://news.1stopfinanceshopuk.biz
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