Low interest rate not helping lower mortgage principle

When the Bank of England reduced interest rates to .5% over a year ago, the move was made to give home owners some spare cash from the new lower mortgage payments.  It also was thought that the spare cash could be used to make larger payments on home loans.

However, Capital Economics economist, Roger Bootle, stated that the claim that homeowners are paying their mortgages back at a faster rate is not founded.

Bootle stated that instead the mortgage principal repayment rate is much less than the lowered interest rates were expected to be showing, and that although the mortgage arrears may be slightly improved they could mask a fragile picture of the homeowners’ market.

The Council of Mortgage Lenders warned that the housing market will be subdued over the last part of the year, even though there has been a slight increase in mortgage lending. During May, lending for mortgages rose by seven percent, but is still much lower than the rates seen towards the end of 2009.

During the month, a total of £11.3b was handed out, an increase from the 10.5b supplied in April but still much less than in December of 2009 when £13.6b was distributed.

The CML stated that the market is still low although it shows a bit more buoyancy with a lower than normal average turnover. Next week the housing market is said to be part of the emergency budget with measures included that may place more pressure on home budgets.

CML economist, Paul Samter, stated that the ground was cleared for the Budget next week in an effort to shape public finances into a better stance.

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