David Cameron chose to reveal the Tory plan for retaining low mortgage interest rates yesterday, in the event that the party are re-elected in May. In a speech held at a property developers in Colchester, a town that has for almost twenty years been a consistent seat for the Liberal Democrats, Cameron suggested that the current Government’s supervision of the economy had played a significant part in maintaining low interest rates for borrowing.
Cameron said: “We will help to keep mortgage rates low so families are more financially secure. When confidence falls, mortgage rates can spiral, homes become unaffordable and families risk losing the roof over their heads. That was the risk Britain faced in the last recession. But this Government came to office, set in place a long-term economic plan and showed the world we were managing our economy. As a result, mortgage rates have stayed very low.”
Noting that interest rates had recently dropped to the lowest level on record, Cameron further outlined why he felt the current Government had returned stability to the economy since coming into office. He said: “So often people talk about macroeconomics up here, and household concerns down here. But the two are intrinsically linked. When we came into Government we had one of the biggest budget deficits in the developed world, we had foreign investors looking at our economy with real concern, and all of that posed a clear and present danger to home owners."
The Prime Minister also announced that the starter-homes scheme, introduced by the Government in December 2014, would be revised to double the amount of properties available to first time buyers under 40. The scheme provides a discount to this section of buyers, by removing the ruling that developers are required to provide affordable housing as part of any new housing development.
On that basis, buyers receive a discount of 20 per cent on the property value, with the restriction that the home cannot be sold at full market value for five years from the date of purchase. It does, however, allow the home to be let. To aid the increase of property stock for the scheme, the Conservatives plan to use derelict industrial and commercial sites for future developments.
While the manifesto will cause concern for savers, the Bank of England is certainly not discounting the potential for future interest rate rises if the rate of inflation increases. Last week, Kristin Forbes, a key member of the monetary policy committee that is responsible for setting the BOE base rate, said that an increase to rates would be required if a spike in household debt levels created a risk to the economic balance.
Forbes, while addressing the Institute for Economic Affairs last week, noted that the chances of this happening soon are low, but that the potential for rates rises should not be seen as a negative for UK households. She said, “Gradual increases in interest rates, if they occur in a timely fashion, should not derail the UK recovery, but instead support and strengthen it.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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