More Interest Rate Hikes On The Horizon, Borrowers Warned

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Fri, 31 Aug 2007

The Bank of England announced yesterday that 115,000 loans for £17.2bn were granted by lenders in July for property purchases – compared with the same number of loans for £17.1bn approved in June.

Net consumer credit rose £1.1bn, up from £1bn in June, and net borrowing on credit cards rose by £0.2bn, while other loans, such as personal loans and overdrafts, rose by £0.9bn.

David Kuo, head of Personal Finance at Fool.co.uk, commented: "The latest report from the Bank of England makes for uncomfortable reading given that five interest rate hikes in the last year have failed to dampen demand from borrowers."

"Although there are promising signs that the housing market may be cooling, interest rates, which are at a six-year high, have yet to temper consumer spending . Borrowing on credit cards remains stubbornly robust, and demand for personal loans and overdrafts has jumped."

Kuo added that the signs give a clear indication of more interest rate rises to come, and said that it will again be homeowners who will have to face higher borrowing costs.

"Borrowers can take active steps now by overpaying their loans today to lessen the effects of higher interest rates," he continued.

"Whether the Bank of England increases interest rates as early as next month hangs in the balance, but homeowners can always tip the scales in their favour by paying more than the amount due on their loans ."

"That’s because every pound overpaid now will decrease the loan rather than go towards interest payments ."

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