MILLIONS of home owners can look forward to a happy New Year with interest rates set to tumble, experts predicted last night.
The Bank of England is expected to announce a quarter-point drop as early as next month.
And in a further boost for borrowers, industry leaders said rates may fall to five per cent or even lower by the middle of the year.
Bank bosses paved the way earlier this month by dropping the base rate from 5.75 to 5.5 per cent – the first cut since August 2005.
It is hoped another cut in interest rates will inject life into Britain’s flagging housing market. The global credit crunch, sparked by “sub-prime” borrowers in the US defaulting on their loans, has driven up the price at which banks lend money to each another.
House prices in this country have stalled in recent months as owners nervously await the outcome. Experts believe that the only way to bring down the wholesale price, and make home loans cheaper, is through at least one cut by the Bank of England.
Another cut in interest rates would bring much-needed relief to home owners battling to make ends meet.
Five interest rate rises since August last year have taken their toll on many families. Nearly a million households are now finding it hard to meet their repayments, the Bank of Engand revealed this week. A further 1.8million people say they have had problems meeting their repayments “at least occasionally”.
Some have been forced to take drastic action, with more than one million borrowers thought to be using their credit cards to cover mortgage or rent payments.
The news comes as analysts warn that the number of home repossessions could hit 70,000 next year – the highest since 1991.
Property expert Ray Boulger, of mortgage advisers Charcol, said: “A cut in January or February is very likely.”
Hopes of a drop were fuelled by a report yesterday showing a lower than expected rise in the cost of living. Experts believe the better-than-expected figures will put pressure on the Bank of England to announce another interest rate cut.
A quarter-point cut would reduce the monthly repayments for a typical borrower with a £100,000 mortgage from £656.23 to £640.78. A half-point cut would save them around £30 a month. Bernard Clarke, from the Council of Mortgage Lenders, said: “While the first cut was welcome, we are looking to see more early in the New Year.”
Figures released yesterday showed that the consumer price index – which is the Government’s preferred measure of inflation – remained unchanged at 2.1 per cent last month.
Although the figure is still above the Government’s target of two per cent it is below what analysts had forecast and it came despite big increases in a host of areas which have put a squeeze on household budgets.
Petrol prices rose 3.5p last month, taking the nationwide average above £1 a litre for the first time, according to research from the Office for National Statistics. With diesel up by 5p a litre over the month, drivers are now paying almost a fifth more than last year to fill up with fuel.
Families have been further hit by a sharp rise in the cost of the weekly shop. Price hikes for some everyday food items, including bread, milk, cheese and eggs, have reached record levels.
There have also been big cuts in the cost of other essential outlays, which helped to keep a lid on the overall cost of living.
Energy bills, after three years of sharp hikes, have finally begun to fall. The average electricity bill is 3.3 per cent less and gas 11.3 per cent lower than in November last year, according to the ONS research.
Other goods and services which have dropped in price include air fares to Europe, vehicle maintenance, eating out, books and electrical gadgets such as digital cameras.
An alternative method of measuring inflation, the retail price index, rose marginally last month from 4.2 per cent to 4.3 per cent.
The RPI is used by the Government to help determine pensions and benefits.
Jonathan Loynes, chief European economist at Capital Economics, said: “November’s figures confirm that the UK is suffering relatively lightly from the latest rise in oil and energy prices.”
David Page, an analyst at Investec, said: “We believe that the Bank of England is right to be focusing on the longer-term prospect of inflation undershooting its target beyond next year, not overshooting.”
GOVERMENT ENCOURAGE MORE BAD DEBT
19.12.07, 6:18pm
Lowering interest rates will send the wrong message to borrowers encouraging more to get into debt. If house prices fall it could be a good warning to buyers not to over stretch themselves as their investment could go down as well as up. Savers are the losers as they get a decrease in pay by lowering interest rates encouraging them to spend instead of save. All this to cover up Brown's errors over the last 10 years, the mess will be left for the next goverment to try and sort out just as labour has always done, borrowed like hell and left the country in debt.
We need property prices to go up further like a hole in the head. This has Browns hand all over it!. The lunatic thinks that increasing debt both public and private is being clever. The economy is in the shit and no ammount of Browns meddling is going to change that sad fact. We need to cut debt and to educate people away from borrowing more than they can pay back. The government is throwing billions at Northern Rock for being greedy with borrowed money and getting their fingures burnt. To reward people for being stupid and getting into too much debt will end in tears.
I have dabbled in the property market over the last ten years and no property I have touched as ever dropped in price. Do I have the Midas touch, no of course I don't!
If you live in a war zone or have a main road or mororway on your back doorstep you will probably have to accept a price reduction from the astronomically high price set in line with the current market. Estate Agents know what they are about as to sellers and buyers. If you bought for £80k and expect £200K, don't cry in your milk if you have to settle for £150K.
Don't get greedy and don't expect miracles slowly, slowly catch the monkey.
The Bank of England is not independent as many people think. They have been told what to do about Northern Rock and will be told what to do about interest rates. Who do you think appointed Merv the Swerve and his advisers on the monetary policy committee? Thats right Gormless Gordon and his Nu Labour gang.
While I'm sure the Bank of England and the Government would prefer to lower interest rates next year I really don't see how they can justify it. The only way would be for the Government to change their 2% inflation target which would be a massive u-turn and a huge political embarrassment. The Government has been fiddling the CPI inflation figure for years. The result? Cheap credit, astronomical house prices, and less disposable income for most people as their wages, savings and pensions fail to keep pace with the real rate of inflation. Yet even the 'adjusted' inflation figure is stubbornly refusing to come down. Many economists expect inflation to rise substantially in 2008 which should rule out any chance of interest rate cuts. In fact interest rates should be going up not coming down. That's without even considering the impact of the global credit crunch which has only just begun to unravel. We've had the credit party for the last seven years, now it's time to pick up the tab. House prices are already dropping like a stone, they're set for a massive fall in 2008 and the downward trend could last for many years to come. I fear Gordon's 'miracle economy' is going to come crashing down and be revealed for the house of cards that it is.
GOVERMENT ENCOURAGE MORE BAD DEBT
19.12.07, 6:18pm
Lowering interest rates will send the wrong message to borrowers encouraging more to get into debt. If house prices fall it could be a good warning to buyers not to over stretch themselves as their investment could go down as well as up. Savers are the losers as they get a decrease in pay by lowering interest rates encouraging them to spend instead of save. All this to cover up Brown's errors over the last 10 years, the mess will be left for the next goverment to try and sort out just as labour has always done, borrowed like hell and left the country in debt.
• Posted by: CAN • Report Comment
LUNACY!
19.12.07, 3:22pm
We need property prices to go up further like a hole in the head. This has Browns hand all over it!. The lunatic thinks that increasing debt both public and private is being clever. The economy is in the shit and no ammount of Browns meddling is going to change that sad fact. We need to cut debt and to educate people away from borrowing more than they can pay back. The government is throwing billions at Northern Rock for being greedy with borrowed money and getting their fingures burnt. To reward people for being stupid and getting into too much debt will end in tears.
• Posted by: kenherts • Report Comment
HOUSE PRICES NEVER REALLY COME DOWN
19.12.07, 2:18pm
I have dabbled in the property market over the last ten years and no property I have touched as ever dropped in price. Do I have the Midas touch, no of course I don't!
If you live in a war zone or have a main road or mororway on your back doorstep you will probably have to accept a price reduction from the astronomically high price set in line with the current market. Estate Agents know what they are about as to sellers and buyers. If you bought for £80k and expect £200K, don't cry in your milk if you have to settle for £150K.
Don't get greedy and don't expect miracles slowly, slowly catch the monkey.
• Posted by: CMcInall1 • Report Comment
NOT INDEPENDENT
19.12.07, 12:46pm
The Bank of England is not independent as many people think. They have been told what to do about Northern Rock and will be told what to do about interest rates. Who do you think appointed Merv the Swerve and his advisers on the monetary policy committee? Thats right Gormless Gordon and his Nu Labour gang.
• Posted by: Col • Report Comment
THIS IS NONSENSE
19.12.07, 11:37am
While I'm sure the Bank of England and the Government would prefer to lower interest rates next year I really don't see how they can justify it. The only way would be for the Government to change their 2% inflation target which would be a massive u-turn and a huge political embarrassment. The Government has been fiddling the CPI inflation figure for years. The result? Cheap credit, astronomical house prices, and less disposable income for most people as their wages, savings and pensions fail to keep pace with the real rate of inflation. Yet even the 'adjusted' inflation figure is stubbornly refusing to come down. Many economists expect inflation to rise substantially in 2008 which should rule out any chance of interest rate cuts. In fact interest rates should be going up not coming down. That's without even considering the impact of the global credit crunch which has only just begun to unravel. We've had the credit party for the last seven years, now it's time to pick up the tab. House prices are already dropping like a stone, they're set for a massive fall in 2008 and the downward trend could last for many years to come. I fear Gordon's 'miracle economy' is going to come crashing down and be revealed for the house of cards that it is.
• Posted by: TomW • Report Comment
WHO WANTS A HOUSING BOOM?
19.12.07, 10:07am
Who exactly wants the housing market to take off again??
The reason people aren't buying houses is because they're prohibitively expensive, largely as a result of low interest rates and reckless borrowing.
By lowering interest rates the whole situation will become worse and worse. How long can the UK borrow itself out of trouble?
• Posted by: Simon1 • Report Comment
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