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Bank of England committee warns that interest rates could rise “this year” (23 June 2014)

Date: 23/06/2014
Duncan Lewis, Housing Solicitors, Bank of England committee warns that interest rates could rise “this year”

The Bank of England’s Monetary Policy Committee (MPC) has warned that interest rates could rise faster than expected as a result of stronger than expected growth in the economy.

The Daily Telegraph reports that the nine-member committee has held a discussion described as “intense” – and has also expressed surprise that markets appeared “unprepared” for a rise in interest rates.

Governor of the Bank of England Mark Carney has recently warned that interest rates could increase sooner than expected – the MPC has suggested that a rise could take place before the end of 2014.

Any increase in interest rates could affect homeowners, whose mortgage repayments have been keep low as a result of the Bank of England keeping the base rate low.

Any increase in interest rates would be the first rise for five years.

Although the economy is growing and unemployment rates are falling, employees are not yet working to full capacity because wage growth and inflation remain weak. The gap between the two is known as “slack” in the economy – a member of the MPC told The Daily Telegraph that estimating the amount of slack in the economy had been made difficult by the “unusual weakness” in wage growth.

It is reported that most members of the MPC believe that the UK’s GDP (Gross Domestic Product) could rise by 1-1.5% before the workforce in the UK achieves full productivity.

Some commentators believe that wages have been pushed down as a result of migrant workers accepting lower wages to secure employment when they arrive in the UK, thereby undercutting British nationals.

However, the credit crunch has also meant that some companies have been unable to pay high wages or recruit new staff, meaning workers in some cases have accepted lower wages or have taken a wage cut to avoid redundancy. There has also been a rise in self-employment and part-time employment since the credit crunch began, following the banking crisis of 2007-2008.

Keeping interest rates low has helped thousands of households keep up their mortgage payment throughout the credit crunch, however.

In July, US economics professor Kristin Forbes will join the MPC – she told MPs that delaying any rise in interest rates could lead to even higher interest rates in the future.

“Delaying any adjustments in order to gather more information could increase the risk that any subsequent adjustments in monetary policy would need to occur more abruptly,” Ms Forbes told a meeting of the Commons Treasury Select Committee last week.

Sharp rises in interest rates were one of the causes of the collapse of the property bubble in the late 1980s and early 1990s,when some homeowners were left with negative equity as high interest rates sent mortgage repayments spiralling upwards and helped push down property prices.

Some critics of the government’s Help to Buy scheme claim that it could lead to another property bubble and subsequent collpase, if first-time buyers stretch their finances and find themselves unable to afford their mortgage repayments when interest rates rise.

The online estate agent Rightmove has already reported that, in June, house prices across the capital fell overall by 0.5%, with property prices in Haringey, north London, falling by nearly 5% on average.

Rightmove has attributed the fall to buyers not being panicked into paying over-inflated prices for properties, however.

The Bank of England has called on lenders to make sure that potential borrowers would be able to afford their mortgage repayments if interest rates increase.

As a result, some lenders have introduced more rigorous financial screening of borrowers before making a mortgage offer.

Duncan Lewis Housing Solicitors

Duncan Lewis is a leading firm of housing solicitors and can advise homeowners on debt and mortgage repossession.

Duncan Lewis can also act for rental tenants in matters relating to:

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For expert help with housing law, contact Duncan Lewis housing solicitors on 020 7923 4020.


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