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Monday, 4 June 2007

Interest Rate Outlook

A rise in interest rates in July is widely predicted by City economists.

Howard Archer, the chief UK economist at Global Insight, said rates are likely to be unchanged in June because of evidence that homeowners are already struggling with affordability.

"The housing market is coming off the boil as demand is increasingly pressurised by the rising affordability pressures stemming from high interest rates," Mr Archer said.

Archer added that there was a 40 per cent possibility of interest rates reaching as high as six per cent.

Home repossessions are already rising as householders deal with rising interest rates as well as council tax and energy bills. As we've mentioned before, 17,000 houses were repossessed last year and experts have predicted this figure will double even if interest rates stay static.

The Financial Services Authority has compiled a database of properties sold at auction, and found that the percentage sold because of repossession rose from eight per cent in February 2006 to 25 per cent in December 2006.

Neil Blake, of Business Strategies, said there were "severe increases in financial stress" from interest rate rises. He predicts that if rates rise sharply from 5.25 per cent to 6.25 per cent, there will be 55,000 repossessions a year in two years' time.