Abbey to start round of home loan rises

Abbey National will today raise the cost of home loans by 0.25 per cent for its 1.6 million borrowers, sparking a generalised increase in mortgage interest rates by UK lenders.

The increase, which will push up the cost of a typical pounds 50,000 mortgage by about pounds 7 a month, is expected to be followed within days by most other lenders, including Halifax and Woolwich.

The Abbey said yesterday its decision was mainly prompted by the need to offer its 12 million savers a better deal.

New borrowers will pay the higher rate immediately, while existing ones will see their mortgages rise from 18 December. Rates for savers will rise by an average of 0.25 per cent on 1 January.

Charles Toner, deputy chief executive at Abbey National, said: "We wanted to increase rates, particularly for our savers, who outnumber borrowers by about seven to one and have lived in a low-interest-rate environment for some time."

The company's move seems set to bring to an end a 12-month period in which mortgage interest rates reached lows last seen in 1966. Abbey National pointed out that even after the rise, mortgage rates would be at their lowest for 25 years.

It follows attempts by Kenneth Clarke, the Chancellor, to convince the City last week that despite his 1p cut in the basic tax rate, his Budget remained fiscally responsible.

However, some economists believe the latest house price increases are one of several factors likely to help fuel a spending boom, potentially leading to higher inflation.

Halifax is poised to announce today that house prices rose a further 0.5 per cent in November, giving an overall 7.1 per cent rise in the past 12 months.

A separate report by Bob Pannell, chief economist at the Council of Mortgage Lenders', said today that an increase in the number of owner-occupiers moving home, linked to first-time buyers coming on to the market, meant the present recovery was likely to be durable.

Until last week, lenders had said they would wait for the outcome of the regular monthly meeting between Mr Clarke and Eddie George, Governor of the Bank of England, on 10 December, before making a decision on mortgage interest rates.

One building society executive, who refused to be named, said yesterday: "Some of us felt that, having recently weathered a rise in base rates to 6 per cent without putting up our variable rates, a increase in mortgage rates was very likely unless Mr Clarke really pulled something out of the bag in his Budget speech last week.

"I'm not sure he really achieved that. Even so, we were planning to go some time after the regular meeting with the Bank of England. This has caught us on the hop and we will probably respond quite quickly."

Pressure on lenders to raise rates has also come from Nationwide, which recently pushed up the cost of home loans to 6.74 per cent for its 1 million borrowers. The society's move, due to take effect today, still leaves it at least 0.25 per cent cheaper than its main competitors.

But at the same time, Nationwide also announced that it was increasing savings rates by a similar amount, making it vastly more competitive on the investment front.

Halifax has some 2.5 million mortgage accounts, compared with 17 million savings accounts. The society's demutualisation, which is set for next summer, could leave it vulnerable to customer-poaching from competitors once its savers receive a free shares handout and are no longer locked in to their accounts.

David Gilchrist, group secretary at Halifax, said yesterday: "Up to now our position has been that we would wait for the meeting between the Chancellor and the Governor before making a decision. We will now be keeping our rates under active review."

A spokesman for Woolwich Building Society said: "We will have to take what our competitors are doing into account when reaching our decision."

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference