Don’t gamble with your home

The minutes of the latest Monetary Policy Committee showed that Bank of England Deputy Governor Rachel Lomax unexpectedly joined David Blanchflower in voting against an interest-rate rise this month.

The two dissenting voices on the Monetary Policy Committee have raised doubts over the likelihood of another interest-rate rise. Currently, the market thinks that another rise in interest rates this year is unlikely. But it still believes interest rates may rise to 5.25% by March next year, with the chance of further interest-rate increases diminishing after that.

David Kuo, Head of Personal Finance at fool.co.uk says: “It is reassuring for homeowners with mortgages to know that interest rates may peak at 5.25% next year.

“But homeowners should not be complacent, nor should they try to second-guess the direction of interest rates when their homes are at stake.

“There is still an 80% chance that interest rates may increase to 5.5% by the end of 2007. That will mean borrowers need to find an extra £83 a month or £996 a year in interest payments on a £200,000 loan.

"But worries about rate hikes can be put on the back burner if you take out a fixed-rate mortgage. It’s ideal for people who need to know where they stand financially from pay packet to pay packet.”