HOMEOWNERS already struggling to meet rising food and fuel bills were offered little comfort yesterday, when the Bank of England held interest rates for the third month in a row.
The monetary policy committee's (MPC) announcement that interest rates will remain at 5 per cent led to warnings of tougher times ahead.
Kennedy Foster, a policy consultant for the Council of Mortgage Lenders, said that, although the majority of
UK borrowers are on fixed-rate and tracker-rate products, which are largely unaffected by a change in base rate, some will be unable to weather the coming storm.
He said: "There are undoubted pressures coming on borrowers, such as increased fuel and commodity costs.
"We have concerns about affordability as well. It could mean increasing arrears and repossessions coming forward."
Jonathan Cornell, managing director at Hamptons International Mortgages, said borrowers should prepare to cut back on spending as confidence in the housing market plummets.
He said: "If inflation continues to rise, rates will increase, and those who are prepared for it will fare best in the long run."
Business and retail leaders approve of the Bank of England signalling its intent to balance its duty to control inflation – now running at 3.3 per cent – with the need to promote economic growth.
David Lonsdale, the assistant director at CBI Scotland, said: "Delivering inflation stability over the medium terms remains the right approach."
Liz Cameron, chief executive of Scottish Chambers of Commerce, urged all sectors to maintain an optimistic outlook.
"Business confidence has taken a hit this year and it is important that we keep the Scottish economy on track," she said. And Sebastian Mackay, a senior economist at Scottish Widows Investment Partnership, predicted inflation will rise but interest rates will drop in the next 12 months.
He said: "With the prospect of an additional rise in gas and electricity prices, we also expect inflation to rise in the second half of this year, with some likelihood that it could exceed 4 per cent.
"Against this background, it is going to be difficult for the MPC to cut interest rates in the short term," he said.
"However, we expect four quarter-point cuts in the spring and summer of 2009, taking the bank rate down to 4 per cent by the third quarter of next year."
Meanwhile, more than one in ten Britons have had to dip into their savings to pay mortgage or rent in the past three months, a survey by Chelsea Building Society yesterday revealed.
About 12 per cent of people admitted they had used money set aside to meet accommodation costs, while 15 per used savings to pay utility bills or council tax.
Boom goes out with a bang in under year JUST under a year ago they were riding high on an property boom. Now market values are sinking fast and housebuilders are rushing in drastic measures to counteract the downturn.
Barratt has been forced to write down the value of its land holdings by about £85 million and to shed 1,200 jobs, which is almost a fifth of its workforce.
Developers in Cornwall have even resorted to giving away top-of-the-range cars free with the sale of flats in Newquay ranging in price from £249,950 to £1.5 million.
Mortgage lender Halifax compounded the gloom by showing house prices fell at a record annual pace in June. Prices are now nearly 10 per cent below the peak hit last August.
The total number of job cuts announced by housebuilders in the last week amounts to about 4,000 as Persimmon, Taylor Wimpey, Bovis Homes and Redrow all warned of a sharp turnaround in business.
The full article contains 621 words and appears in The Scotsman newspaper.
