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We need new way to cool economy

With around 70 per cent of borrowers being on a fixed rate, how effective are bank base rate moves at curbing spending and cooling the economy? With only three out of every 10 people seeing an increase in their mortgage payment next month, how quickly will people’s propensity to spend be affected?

Certainly, with a trillion pounds worth of unsecured borrowing out there, people will see their credit card payments and loan payments increas, but the biggest impact, I suspect, will be on those already on the periphery of affordability.

Obviously, base rate movements affect more than just mortgage payments. It also has a substantial effect on our industry and exports but does a rate rise have the same effect that it had, say, 10 years ago when the ratio of fixed-rate loans was significantly lower? Is it now time to look at other methods of deterring the public from spending?

I am the last person that would ever want to push for more tax but taxation has an immediate effect, affects everyone who earns, not just those with credit and, therefore, surely is more effective and fair.

Again, I am not endorsing more tax but it seems as a nation we have become more financially savvy and more effective at protecting ourselves against the impact that base rate rises once had.

We need a more sophisticated tool or tools to keep a cap on our economic growth.

The Bank of England must see the effects of a rate change take longer to kick in so could we see more rises as it continues to try and cool inflation?

The end-result may be that it overshoots its mark and the economy is damaged rather than restrained.

The availability of credit could well be an option to explore and the FSA does have affordability on its radar.

With arrears, IVAs, bankruptcies and repossessions on the increase, it could be justification to explore how borrowing limits are set and even to impose legislative controls.

Controlling access to credit will certainly effect people’s ability to borrow and spend and may help prevent some from creating a problem for themselves.

The level of borrowing an individual can undertake has risen sharply in recent times, with lenders offering six times salary or a credit decision instantaneously.

Credit is certainly helping to fuel the economy and drive inflation. Banks are happy, look at their profits, but should there be a greater accountability?

Jonathan Burridge is managing director of Quantum Mortgage Brokers.

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