A rollercoaster mortgage rate

Clifford German reveals fluctuations as the market reads the Chancellor 's mind

Mortgage rates are definitely set to rise after Abbey National put its variable rates up by 0.25 per cent with immediate effect for new borrowers and from 18 December for existing borrowers. The chances are that Halifax will raise its variable rate on 11 December, the day the Chancellor and Governor of the Bank of England review base rates, if not before. And if Halifax goes up, the rest of the industry will move.

Abbey National's decision to raise its mortgage rates is more significant than the similar move by Nationwide last month. Nationwide's then standard mortgage rate was unusually cheap and, at 6.74 per cent, its new rate is still a touch below the average. Abbey National was, however, already one of the more expensive lenders and its 7.29 per cent new rate for mortgages under pounds 60,000 is at the top end of the range.

The Coventry Building Society has raised its "privilege" mortgage rate for established customers to 6.50 per cent and its standard variable rate for new and recent customers to 7.25 per cent with effect from 1 January. This takes it to the top end of the range for mutual societies and challenges other mutuals like Bradford & Bingley.

Northern Rock has leapfrogged the market, raising its mortgage rates by 0.5 per cent to 6.99 per cent for established borrowers and its standard variable rate for new and recent customers to 7.49 per cent. Executive director Adam Applegarth says this merely reflects his belief that the Chancellor will raise rates again so the society is telescoping two moves into one. But borrowers may think it has more to do with the need to boost profits when the society becomes a bank next year.

The acid test will come next week when we see how far Northern Rock's rates for savers are raised. The Coventry will also announce new rates for savers this month. Abbey National will also publish its new rates for savers shortly but has made it clear the rises will range from 0.05 per cent to 0.25 per cent which suggests Abbey is fattening its profit margins. Abbey will also be reviewing its policy on cashbacks, discounts and fixed-rate mortgages in the new year.

Rises in variable rates have been inevitable since the Chancellor raised the base rate last month. Fixed-rate mortgage offers are also disappearing almost daily now and being replaced by new and higher rates.

The odds must now be strong that mortgage rates will be higher now than over the next three years and that makes any two- or three-year fixed- rate mortgage at much less than the current variable rate look an increasingly good option. Demand for fixed-rate loans has trebled and will go on rising until the rates equalise or exceed standard variable rates. But borrowers and savers waiting for share bonuses from societies converting or being taken over have little choice but to stay put, while mutual societies have a classic opportunity to demonstrate they can offer better rates in the long run to both borrowers and savers