The European banking system is affecting the lending process more in the UK than most people realize.  The Bank of England has kept the base interest rate at the historically low level of 0.5% for as long as it possibly could.  This has resulted in homeowners paying ridiculously low mortgage payments.  In other words, homeowners who would normally have had to sell a long time ago are still residing in their homes.  That is not where the problem resides.  The real issue is the cost of bank loans between banks cannot fall any further.  This condition results in UK banks, which are borrowing from other European banks, to have to pay more for the same amount of money within a money market. 

Ray Boulger of John Charcol, recently commented on what this all represents for the everyday borrower residing in the UK.  He said: "If, or when, Greece defaults and comes out of the euro, banks will be wary of lending to each other and there'll be a shortage of mortgage finance", he says. Lenders will push up mortgage costs – "first because they can, and second to stop being swamped with business." 

The fact that mortgage lending is tight is already widely known.  The housing market can only be resistant to so much pressure.  A solution to the rest of the European banks’ financial crisis would certainly make a difference here at home.

For the UK homeowner, a raise in the base rate would almost certainly mean an end to living in their current home.  At the very least, it will strap households into changing financial habits even further.

A possible hike in the base interest rate leaves little question as to what those who own a variable rate mortgage loan should consider.  There are still several fixed rate products available for the taking.