Analysts say cheap mortgage era is over

The era of cheap mortgages is over, senior Treasury officials told the Daily Telegraph yesterday, as consumers were warned that the prevailing financial crisis would affect Britain for at least another year.

The credit crunch and the recent collapse of America’s fifth largest bank, Bear Stearns, has further added pressure to the already precarious UK economy. The Telegraph reported that although the US Federal Reserve took the drastic step of cutting interest rates by three quarters of a percentage point to combat the downturn, homeowners should expect continuing turmoil until 2009.

Michael Saunders, economist at Citigroup says, “The Bank of England will remain worried about the effect of rate cuts with high and rising inflation.” BBC news reported that UK consumer inflation reached its highest level in nine months last month.

The Federal Reserve’s move to cut interest rates— the second such drop this year — came amid further signs that British householders are experiencing significant strain as a result of increasing bills. Rising mortgage costs have forced millions of people to seek help to meet the costs of their household bills. Analysts are predicting that high inflation will prevent the Bank of England from further cutting rates, placing additional pressure on British homeowners.

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