The higher interest rates charged by some UK mortgage providers will likely encourage lenders to do the same in the coming months, posing a threat to the recovering economy.
While exports remain weak over the uncertain growth in the Eurozone, the UK economy will mainly depend on consumer spending to post growth this year. Unfortunately, rising mortgage payments could erase the possibility of an expansion, adding to concerns over fuel price hikes and rising unemployment.
Setting a three-year low, the Bank of England’s key interest rate stood at 0.5 percent. Some banks now deem it more expensive to borrow money for homeowners, partly because of the Eurozone crisis.
If lenders pass those costs to homeowners, the UK economy will likely feel the effects, considering that two thirds of residential properties belong to owners who live in them and a large number have taken loans to purchase the homes.
“After the great deal that has been made of how important low interest rates have been to the stabilisation of the housing market, any upward move in mortgage rates…is not going to be welcome,” said Ed Stansfield, Chief Property Economist for Capital Economics.
Related Stories:
Aussie mortgage brokers not expecting further rate hikes
UK mortgage fraud down 11% in 2011
US govt expands mortgage assistance