Home loan rates could fall to 5pc

Britain has yet to make a decision on joining the single currency but homeowners are already benefiting from the expectation that we will sign up at some point in the future.

Mortgage customers have enjoyed three interest rate cuts since the start of October, with further reductions likely next year. The financial revolution about to occur on the Continent is clearly putting extra downward pressure on British rates.

Borrowers can hopefully look forward to even lower mortgage costs as UK interest rates drop further to converge with those of mainland Europe ahead of our possible entry into Economic and Monetary Union (EMU).

On January 1, 11 countries will adopt the euro as their national currency. They include France, Germany, Italy and Spain. The interest rate for the euro-zone countries is 3 per cent.

Some analysts have predicted that base rates (currently 6.25 per cent) could fall to less than 5 per cent next year and as low as 3 per cent by 2000 if the Government signals its intention to join the single currency. If Britain does go in, some experts believe that by 2002 it could be looking at a standard variable mortgage rate of between 4 and 5 per cent.

That could mean someone with a ?60,000 repayment home loan paying up to ?127 a month less than they are now.

But Martin Ellis, economist at the Halifax, says nothing should be taken for granted. There are no guarantees that British base rates will fall as far as some have suggested, or that the Euroland rate will remain at 3 per cent.

While interest rates in the euro zone are likely to be significantly lower than in the UK, experts are warning people to tread carefully. There is no guarantee that sterling will be locked at any particular rate against the euro and if sterling were to drop sharply, borrowers could land themselves with a much larger capital debt to repay.

Abbey National and Barclays have both confirmed they will be launching variable-rate euro mortgages for those with an income in euros early in the New Year.