Fool.co.uk warns of future rate increase

21/08/2009

The Bank of England will increase interest rates eventually and catch many customers out, Fool.co.uk pointed out in new analysis today.

According to an expert at the financial website, banks are currently keeping mortgage rates low due to the institution's holding of its own lending rate at an all-time low of 0.5 per cent.

However, this rate is likely to be increased when the economy recovers - which could come as a shock to some borrowers.

The Fool.co.uk comments follow the release of research from professional services firm KPMG earlier in the week, which showed that current financial conditions were still "challenging" for commercial banks - and that the firms' retail arms might make losses over the second half of the year.

However, news from the continent has suggested that the global downturn might be coming to an end, with both France and Germany recording economic growth over April-June 2009.

David Kuo, Fool.co.uk director, commented: "When the interest rate goes back up again these people will suddenly be inundated with massive increases in their monthly mortgage repayments."

EuroDebt director Kevin Still added: "There is a risk that homeowners take the current interest rates for granted and that household budgets that are balanced very tightly may be at risk if interest rates rise by several percentage points.

"This is true of both homeowners and those who invested in the buy-to-let market. EuroDebt would recommend that homeowners look at potential risks if interest rates rise and how they can accommodate increases in expenditure which may represent several hundred pounds per month. When we see genuine signs of the recession ending then this may be time that we see a delayed effect in the number of insolvencies as the government quantative easing measures are stopped."

Tags; Housing Debt and Bills, Young Family Finances,

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