Mortgages Set To Rise, Says King
Mr Mervyn King, governor of the Bank of England has said that whatever the Bank did with interest rates the cost of borrowing is likely to go up as a result of the sub-prime crisis in the US, and the knock-on effect it has had on financial markets around the world. In effect he was admitting that the Bank no longer has control over interest rates.
This will come as a major blow to home owners who were hoping that the bad news of turmoil in the financial markets would at least have the effect of preventing any more interest rate hikes by the Bank of England. Sadly, the same reason that interest rates may have peaked may also cause banks to put up their mortgage rates anyway.
Both Mr King and Chancellor of the Exchequer Alistair Darling had critical words for banks and their risky and reckless lending habits. Mr Darling called for a return to “good old-fashioned banking” and encouraged borrowers and lenders alike to ensure that borrowers could repay any money they were lent.
Abbey and Bank of Scotland both put mortgage rates up on the same day as Mr King made his bleak forecast. After five base rate rises since last August, Mr King said the Bank could lower its rate from 5.75% to ease the pain for home buyers, but warned that there was guarantee that it would do so. The cost of borrowing between banks is at its highest for almost nine years, but Mr King said he has no intention of bailing out irresponsible bankers, as that would only encourage them to carry on speculating and taking risks with offering people loans. However, he said he would “protect the public from the consequences of the turmoil by continuing to maintain economic stability” by setting interest rates in order to meet the government’s inflation target of 2%.
Many economists believe interest rates have now peaked at 5.75%, at least for 2007.