A past adviser to the Government is warning that low interest rates might be placing millions of borrowers and savers in danger. Britain’s policy on interest rates is forcing many borrowers and savers to take large risks according to past consultant Dr. Ros Altmann who stated that the Bank of England needs to chance the Base Rate because keeping it the same is risky.
According to Atlmann, borrowers are being talked into taking on loans that are priced too low to stay that way and once the house prices started to increase and mortgage lending perks up they are going to find their rates much higher than anticipated. In some cases lenders are enticing borrowers to take very low priced loans set at rates as low as 1.48%, and at the same time personal loan rates are down to 4.8% which is much lower than during the years previous to 2007.
Dr. Altmann explained that this is enticing many people to take on long term debt that in the long run they are not going to be able to fit into their budget. Altmann explained that once the market improves the rates are going to start to rise and as a result many people that confidently took on small loans are going to find that they are stretched way past the breaking point of their budgets.
At the same time, many savers are now dumping money into the stock market since the cash savings account rates are so low and this might lead them to make risky investments that they would otherwise avoid. It is estimated that the average return on all easy access accounts has dropped by about 5% total and this could be a problem for many people that had nest eggs that are now gambling it on the stock market.