Increasing the bank rate from 0.5% would result in many homeowners falling deeper into debt problems.
- Higher interest rates will have a detrimental effect on many homeowners, says Sir Mervyn King
- He said raising the base rate would be premature
- The base rate has been 0.5% since it was reduced in March 2009
Increasing the Bank of England base rate will have a big impact on homeowners, the current governor has said.
Mark Carney, who will take over the role next week, was reported by The Daily Mail as telling ITV News that a rise in interest rates from 0.5% will eventually happen; however, current Bank of England governor Sir Mervyn King said it would have a detrimental effect on those who are already heavily in debt.
Sir King retires from his post on Monday (July 1st) after ten years in the role and was in charge when the base rate was dropped to 0.5% in March 2009.
He was quoted as saying: “It is clearly the case that with the prospect at some point down the road of higher interest rates it is not sensible to be in a highly indebted position.”
Sir Mervyn noted that homeowners who bought their properties before the economic crisis would be most affected, as they have extremely large mortgages and interest rates would only make their financial position worse.
Speaking to the Commons Treasury Select Committee, he said returning to higher interest rates is “premature”, as “so many households have such a high level of household debt”.
The Monetary Policy Committee will meet next Thursday (July 4th) to discuss whether to raise the interest rates from 0.5% and to keep the quantitative easing asset purchase programme at £375 billion.