Spot the Difference

governments traditionally used higher interest rates (inevitably passed on to mortgage borrowers) as a way to bring down inflation when it threatened to get out of hand. The theory was simple: higher interest payments meant homeowners had less money to spend in the shops, meaning retailers couldn’t get away with too many price rises. Since 2008, however, central banks have tended to concentrate on keeping rates as low as possible, so that people have spare money to spend and help keep the economy moving. Another argument against rate rises is that the current inflation doesn’t appear to be the result of consumers having too much money, but rather goods being more expensive to produce. That means interest-rate rises might not have that much effect and could even cause problems with consumers cutting back on purchases of non-essential goods. On the other hand, the Bank of England’s Monetary Policy Committee (which sets interest rates in the UK) may conclude rate rises are its last resort against excessive inflation. That means existing borrowers, those coming to the end of fixed term deals, and those planning to take out a mortgage for the first time, should all build some extra slack into their calculations and make sure they could cope with any increase in their monthly repayments.

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