Could mortgage rates shoot up to 8%?

The recent interest rate hikes enforced by the Bank of England have already put potential property purchasers – particularly first time buyers – in a very difficult position.

Over the past eight months the interest rates have been hiked up on three occasions, taking them from four and a half percent to four and three quarters of a percent last August, then to five percent in November, and finally to five and a quarter percent in January of this year.

A number of experts have been predicting that another interest rise could take place before the end of the first quarter of 2007, and now one leading economist has concluded that in order to control rocketing property prices in the UK the interest rate will need to rise to eight percent or more.

The Director of the National Institute of Economic and Social Research – which advises the treasury and the Bank of England – Martin Weale said that rates may even need to rise as high as ten percent to avoid economic disaster.

According to Mr.Weale unless a considerable increase in the interest rate the UK could see the property market bubble burst and crash, leaving millions of homeowners devastated.

According to official data, the average house price in the UK is rising by over four thousand pounds a month, which equates to an average rise of nearly fifty thousand pounds a year. This is more that twice the annual salary of the average worker in the UK.

If the interest rate did rise to eight percent, a repayment mortgage on a one hundred and fifty thousand pound mortgage could rise by three hundred pounds per month, and could leave many struggling homeowners in a very awkward financial position.

However, Weale stated: 'Ten percent might bring the boom under control, or possibly eight percent would be enough to do it. But a quarter-point here or there is not going to do it.'

Tom Smith
19.03.07