Rate increase forecast

According to Ernst & Young, an increase to five per cent is needed to control inflation, but this could push homeowners further into debt by increasing mortgage repayments linked to the Bank of England rate.

Peter Spencer, chief economic adviser to Ernst & Young Item Club, said: “Interest rates need to be raised again in November to stop credit expansion and asset price inflation spilling over into excessive demand and inflation.”

Such predictions may drive many homeowners to take on advice on becoming debt free before the anticipated rise to ensure they have the funds to meet repayments.

However, better debt management may be needed not just for next month but for next year too.

“If house prices continue to accelerate, interest rates will have to rise further in 2007,” warned Mr Spencer.

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