Interest rates likely to drop to 4.5% in 2008

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by Kay Murchie

Experts at the Centre for Economics and Business Research and the European bank believe that the base rate could reach 4.5% next year – the level that interest rates were in August 2006.

As the Bank of England tries to counter weak growth in the economy, interest rates could be cut at least 4 times in 2008 say analysts.

Homeowners struggling with higher mortgage repayments could see a reduction in interest rates as early as January. Earlier this month, interest rates were cut from 5.75% to 5.5%.

One expert said that so far only the housing and financial markets have weakened considerably as a consequence of the credit squeeze. However, it is expected that the flow of negative economic data will become more pervasive, supporting further action by the Bank of England.

A study by Hometrack, the property information specialist, has established that property prices have fallen for 3 consecutive months. The study puts the annual rate of house price growth for 2007 at 3% - the lowest rate of growth since June 2006.

Furthermore, lenders are predicting that repossessions will increase by 50% next year as homeowners struggle with higher payments.

Research from the Council of Mortgage Lenders shows that 170,000 homeowners will be 3 or more months behind in repayments during 2008, compared to 145,000 this year.