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Archive for the ‘Inflation’ Category

Interest Rates Expected to Rise Again

Thursday, May 17th, 2007

GraphAs I watched the evening news last night I was surprised to hear that interest rates are expected to rise again in the next few months. In a recent poll 65% of the economists predicted another rise to 5.75% later in the year.

The reason so many believe it will take place is so The Bank of England can hit their 2% inflation target within the next 2 years.

However, if interest rates continue to grow at this speed what is going to happen to the housing market? We’ll have to wait and see.

Catalyst For a Crash?

Wednesday, April 25th, 2007

WalletInflation has hit 3.1% forcing the bank’s governor, Mervyn King to write a letter to the chancellor explaining why inflation has broken through the 3% level. I suppose the next question is – how high will interest rates go? With the rise in inflation it is likely that interest rates will increase further in order to discourage consumer spending and to decrease the rate of inflation. The base rate is currently set at 5.25% but it is forecasted to rise to 5.5% on 10th May when the Bank of England’s monetary policy committee is due to meet.

However, if interest rates increase by more than this there will be some unfortunate consequences; those who have taken out interest-only mortgages will be hit hard as their repayments will seem more and more unmanageable. The many buyers who opted for a fixed-rate loan may not notice a difference however if they have a short-term contract they could also face steep rises in interest repayments.

Investment bank ABN Amro predict that the base rate will in fact rise to 6% by the Autumn, they are also preparing for a possible house price crash, however many other large banks disagree.

As these minor changes occur in the economy, I also wonder if it’s all heading towards a crash. Although I know this will dampen economic growth, it may also mean I can finally buy a house :).

Further information at The Guardian.