Borrowers urged to prepare for more interest-rate hikes

The Bank of England announced today that 115,000 loans for £17.2b were granted by lenders in July for house purchases.

This compares with the same number of loans for £17.1b approved in June.

Net consumer credit rose £1.1b, up from £1b in June, and net borrowing on credit cards rose by £0.2b. Other loans, such as personal loans and overdrafts, rose by £0.9b.

David Kuo, head of Personal Finance at Fool.co.uk, says: “The latest report from the Bank of England makes for uncomfortable reading given that five interest rate hikes in the last year have failed to dampen demand from borrowers.

”Although there are promising signs that the housing market may be cooling, interest rates, which are at a six-year high, have yet to temper consumer spending. Borrowing on credit cards remains stubbornly robust, and demand for personal loans and overdrafts has jumped.

“The signs all point to more interest rate rises, and once again it will be put-upon homeowners who will have to bear the brunt of higher borrowing costs. That said, borrowers can take active steps now by overpaying their loans today to lessen the effects of higher interest rates.

“Whether the Bank of England increases interest rates as early as next month hangs in the balance. But homeowners can always tip the scales in their favour by paying more than the amount due on their loans. That’s because every pound overpaid now will decrease the loan rather than go towards interest payments.”