Get Ready For An Increase In The Cost Of Your Loans
Over the course of the past six months or so, those individuals making regular repayments on a mortgage or homeowner loan must have thought that all their birthdays had come at once, as the base rate of interest for loans has dropped steadily from 5 per cent in October last year, to a mere 0.5 per cent from the beginning of March this year.
For a homeowner with a typical loan of £150,000 who has benefitted from the full amount of the rate cut, this has meant a saving of interest on their loan repayments of around £562 every month.
But before we get too complacent on our new, lower homeowner loan repayments, we must remember that what goes down can also go back up again and this is the warning which has been given out by a leading member of the Bank of England’s Monetary Policy Committee (MPC).
Chief economist for the Bank of England, Spencer Dale, commented during a conference in London last week that when the MPC made the decision to cut interest rates on homeowner loans as drastically as they have done recently, it was fully on the understanding that they were likely to rise again in the future in order to keep inflation under control and that the rate of increase could be as sharp as the recent falls which have been seen.
Mr Dale said “The committee adjusted monetary policy boldly and decisively on the way down in order to meet the inflation target. And, let me assure you that, when the time comes, we will be prepared to respond with equal vigour on the way back up.” He also said that the economy was not expected to pick up significantly before the end of 2009 and no action would be taken until there were good signs of recovery, but it could be advisable to make the most of cheap loan repayments while they are still here and reduce your outstanding loan balances before rates increase once more.
