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Family | Debt

Families should reduce debt before interest rates rise to possible 8%

If one economist is right, the standard base interest rate could go up to 8 per cent in 2012.  Should that happen, then adding in the bank’s current usual markup of 3.5 per cent, a home owner could be paying a mortgage with an 11.5 per cent interest rate.  That could mean a 900 pound increase in the monthly payment.  It also means there will be many more people that will be seeking out IVA advice.

Andrew Lilico, the Chief Economist with Property Exchange has revealed that he expects inflation to rise rapidly.  This would force the Bank of England’s Monetary Policy Committee to increase the base rate for interest.  It will happen over and over again till the rate rises to a minimum of 8 per cent by 2012.

The effect that this would have across the UK could be staggering.  While many would stop to think that this rate is outrageously high, it actually isn’t.  Unfortunately many have gotten used to the record low rate that is currently at 0.5 per cent and has been sitting there for months.  It is easy to get used to it.  It is just as easy to believe it won’t be changed and that if it does it will be a minimum jump.  From 0.5 per cent to 8 per cent in less than two years’ time is anything but minimal.  In the late 1970’s the interest rate was at 17 per cent, concluding the 1980’s the rate was at 14 per cent and in the late 1990’s it was at 15 per cent.  So, it won’t exactly be an alarming rate to the government should it go to 8 per cent. 

Debt Consolidation | iva.net

It will however, be alarming to those that are now on a standard variable rate (SVR) for their mortgage and those due to convert to their lender’s SVR, especially if they are unable to remortgage.  Lilico did give advice, saying that families should take a hard look at their debt and do what they can to lower it before 2012.  It is better to be preparing than to be caught unprepared in a forecast such as the one Lilico is giving of the UK economy.