Don’t let the BoE juggle with your mortgage and your home

David Kuo, Head of Personal Finance, says: “The Bank of England is attempting a dangerous juggling act with the UK economy. It is hoping that tighter credit conditions will encourage more people to save, which in turn will bear down on spending.

“It is also keeping its fingers crossed that higher oil and food prices, and more expensive gas bills will hold back wage growth and moderate consumer spending. Additionally, it is praying that lower house-price inflation and heightened uncertainty may dampen spending growth.

“That said, the Bank of England also confessed that it cannot predict with certainty how the recent turmoil in the financial markets will affect consumers. It pointed to substantial uncertainties over credit conditions, house prices, consumer spending and world growth.

“Nevertheless, it expects the UK economy to slow and then recover, and for inflation to rise above the 2% target in the short term, then ease back. Clearly, there were lots of ifs and buts in the Bank of England’s Christmas wish-list, but homeowners should not attempt to emulate the central bank’s juggling act.

“Homeowners on fixed-rate deals should try and overpay their loans. By overpaying just £20 a month on a 5.25% fixed-rate deal, homeowners would not only slash £5,880 off every £100,000 borrowed, but also cut the time to repay the loan by almost two years.

“In uncertain economic times, you don’t want to, like the Bank of England, have too many balls in the air at the same time. We don’t even know if the central bank is juggling with balls – it could be knives, or fire, or both!”