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PPI: Interest rate rise would be 'catastrophic' for borrowers

A rise in interest rates would be catastrophic for borrowers, it has been claimed.

The base rate has remained at its historically low level of 0.5 per cent since March 2009, which, despite meaning poor returns for savers, has meant those with debts have seen their repayments fall.

Paul Holmes, chief executive of financial advice firm Firstrung, expressed his belief that if interest rates hit two per cent it would be bad news for borrowers.

He said: "If the rates did rise, [and] crept up by two per cent and lenders passed on that two per cent rise, to borrowers that at the moment would be quite catastrophic.

"If interest rates go up [then] mortgage rates go up, repossessions go up, the shares in the bank fall, the amount of liquidity that those banks then need off the government would increase [which means] more bailouts."

The comments were made after the Confederation of British Industry forecast that interest rates could rise gently through to mid-2012, with the base rate hitting 2.75 per cent by the end of 2012.

Posted by John Fieldman

Having worked in the city for 19 years, John's main focus is interest rates and corporate finance ADNFCR-2776-ID-800308002-ADNFCR

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