In a bid to rein back inflationary pressures within the economy, the Bank of England yesterday pushed up interest rates a further 0.25 per cent. The response by lenders to the base rate increase was immediate.
Halifax said it was raising its variable mortgage rate for new borrowers right away from 7.6 to 7.95 per cent, a 0.35 per cent increase which will push up the cost of a typical pounds 50,000 interest-only loan by pounds 13 a month. Other lenders also followed suit, including Cheltenham & Gloucester, Abbey National and the Coventry.
The new rate will apply to existing borrowers from 1 July. Unlike the last month, banks and building societies are promising that they will increase savings rates at the same time. But they are refusing to commit themselves to push up savings rates by the same amount.
The rise comes hard on the heels of last month's increase, leaving borrowers paying off a pounds 50,000 loan with an extra pounds 26 a month to pay within a few weeks.
The increase has surprised few mortgage experts, however. Alan Mudd, sales manager at John Charcol, the UK's largest mortgage broker, says it predicts, if anything, that the upward movement in mortgage rates will continue.
He says: "We think that inflationary pressures within the economy will continue and probably intensify. We have just had the Halifax flotation this week, the Alliance & Leicester last month, and two more flotations later this month.
"There will be many millions of people with upwards of pounds 1,400 each to spend, assuming that up to a quarter do sell their shares immediately. Experience indicates that most of that money will be spent on consumer goods, foreign holidays and cars, which tends to increase inflationary pressures."
John Charcol is predicting variable mortgage rates will be between 8.25 and 8.75 per cent by the end of this year, with no fall expected until the middle of next year, if then.
For borrowers and new homebuyers, the pressure is on to hunt down a decent fixed-rate mortgage before they are all withdrawn by lenders and priced upwards over the next few weeks. Portman Building Society is presently marketing a 6.75 per cent rate, fixed for two years, until June 1 1999.
Other options for borrowers include discounted rates, where the mortgage is pegged 1 or 2 per cent below the prevailing variable rate for one or two years. Both Leeds & Holbeck and Yorkshire Building Society have attractive discounted mortgages.
For those prepared to take a longer view, Birmingham Midshires is offering a "capped" mortgage, where rates will not rise above 7.99 per cent for the next five years.
However, Mr Mudd adds that although most borrowers will be cursing the latest increases, it is still important to view them in perspective: "Historically, mortgages are still relatively cheap. In the last 25 years, the average rate is just over 11 per cent, so this is not the end of the world."Reuse content