INTEREST rates look set to climb again on Thursday by at least a quarter of a point, pushing up the cost of a £100,000 mortgage a bit over £20 per month. Commentators are predicting a further hike before the end of the year, giving us underlying rates of 6%. For the first time in nearly a decade we will be looking at mortgage rates of 8%.
While this will be good news for savers, it will hardly be welcomed by borrowers, particularly those coming off fixed-rate deals some time later this year. Many will have locked into cheap rates of between 4% and 4.5%. If they want to fix again, the
best they may be looking at will be 5.75% to 6%.
While a 1.5 to two point increase in repayment rates may not sound dramatic, at these levels it can represent a 50% surge in monthly bills. This could come as a painful shock to some households.
How they respond remains to be seen. Recent rate rises do not appear to be taking the edge off our appetite for mortgages. House prices are rising more than twice as fast as this time last year, pushing annual inflation up to 11% with average prices now £184,070.
The picture on the savings front could hardly be more dire: its worst for 50 years. Consumers are not saving at all but have a negative savings ratio of minus 3.3%. This must mean that those of us with savings are spending them to live on.
No wonder some commentators are predicting it could all go belly-up over coming months.
The news from the US could hardly be worse. The housing market is in a dire state with widespread mortgage defaults. Banks are losing their nerve and withdrawing their credit lines.
Credit crunches are ugly things and can hurt consumers badly. As lenders take fright, bargains disappear, draconian charges and penalties reappear, and mortgage valuations tend to go through the floor, as banks and surveyors retrench to shore up their position.
It can be very difficult to switch between lenders, and mortgage companies eye any application with deep suspicion. Borrowers become trapped on poor deals, unable to move, while house prices go into a tailspin.
But we shouldn't get carried away. US banks have always looked kindly on the dodgiest borrower, granting high risk deals such as 'deferred' and 'stabilised' loans. These are no longer sold here, after badly biting our mortgage companies during the last house price crash.
Mighty pound
HOW bereft of pleasure life would be without the joy of schadenfreude. While we can sympathise with our US cousins' pain, it has left us laughing all the way to the travel agents.
The pound passed the $2 mark last week, which is great news for those planning a summer break in the United States, or countries with currencies tied to the dollar.
Those heading for the Caribbean, South America, Canada, Oman, Dubai and parts of the Far East, including Hong Kong and Malaysia, will all get more for their money after the latest surge by the pound against the dollar. The best dollar rate for holidaymakers last week was $1.92 to the pound, offered by Marks & Spencer, next best at $1.91 were both Travelex and International Currency Exchange (ICE).
But don't laugh too loudly. Who knows where we'll be holidaying next year. Let's just hope it won't be a shop doorway on Princes Street.
Flooding hell
THE scenes of last week's flooding were truly awful to watch. Behind every flooded home there is a human drama unfolding.
I found myself thinking of the teenagers in the middle of their GCSEs or A-Levels. How traumatic it must be for them, not least if course work were destroyed.
And families' grief is only just beginning. It can take two or three years for a house to dry out, and sometimes the insurers won't let you back in sooner. This means endless months in bed and breakfast accommodation. What a nightmare.
Popular poll
CONFIDENCE in our savings industry is vital, and it is gloomy news indeed that we are not saving at all.
Undoubtedly some bad news stories have hit confidence, as last week's poll showed. But we shouldn't forget that for every muck-up, millions of staff work conscientiously day in, day out to give us the best service they can.
Thank you to all readers who took part. It seems Oscar Wilde was right when he said: "Journalism justifies its own existence by the great Darwinian principle of the survival of the vulgarist."
The full article contains 781 words and appears in Scotland On Sunday newspaper.
