Mortgage experts are sceptical of The Policy Exchange’s forecast that interest rates could rocket to 8 per cent by 2012.
The thinktank’s chief economist Andrew Lilico says the Bank of England may be forced into dramatic bank rate increases due to rapidly rising inflation.
The forecast is in stark contrast to Ernst & Young’s prediction last month that bank rate will remain at its record low of 0.5 per cent until the end of 2013.
A Council of Mortgage Lenders spokesman says : “What is being suggested is very much at the most severe end of the range of predictions set out by economists. It is an extreme view and is not one that very many economists would subscribe to.
“If interest rates rose to those sorts of levels, there would be very significant impacts on homeowners and households generally. It would be very dramatic.”
A Building Societies Association spokeswoman agrees that such a big rise in bank rate is unlikely over the next two years
She says: “It is sensible for mortgage borrowers to plan for an interest rate increase of some sort over the next year or two but, in our view, the likelihood of interest rates reaching 8 per cent, as suggested by The Policy Exchange, is extremely low.”
First Action Finance head of communications Jonathan Cornell says: “The effect of going from 0.5 per cent to 8 per cent would be just catastrophic and arrears would go through the roof.
“I do not think it will happen but, if it did, it would be financial Armageddon for borrowers.”