Bank Needs To Keep Low Loan Rates
The Bank of England has now kept the base rate of interest on loans and savings at a historically low level of just 0.5 per cent for more than two years, due to the adverse economic conditions in the UK at the present time.
But as speculation is now growing as to when exactly the Bank will increase interest rates, with some expecting an increase in loan rates as early as next month, many financial experts are warning the Bank of England not to increase rate at the moment, as this would have a devastating effect on many borrowers.
Although an increase in the cost of a typical variable rate loan is inevitable at some time this year, an early rise could lead to huge financial problems for those individuals with a variable or tracker rate home owner loan or mortgage, as even a small increase in monthly loan costs could push their household budget over the edge.
But because home owner loan rates have been so low for such a long period, many borrowers have become complacent about the cost of their loan repayments, accepting the current low rates as the norm.
Ernst & Young have warned the Bank of England against an early loan rate rise, due to the likely damaging effect this would have on the economy, as well as individual borrowers with variable rate loans, leading to a significant increase in loan arrears and repossessions.
Peter Spence of Ernst & Young said “Our forecast assumes that the MPC (Monetary Policy Committee) will keep interest rates on hold until November this year, when a revival should be evident. The economy will be much stronger next year as inflation falls back and the consumer begins to enjoy the recovery.”
