Lenders warn of rate rises

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The Independent Online
THE CONSENSUS is that interest rates will rise this year, writes Vivien Goldsmith. The question is by how much.

David Gilchrist, general manager of the Halifax Building Society, expects 6.75 per cent in the spring.

At UBS, analysts expect inflation to rise steadily throughout the year, with interest rates climbing to keep pace - from 6.5 per cent in the first quarter to 7 per cent in the second quarter, then 7.75 per cent and finally 8 per cent.

David Kearn, chief economist at National Westminster Bank, thinks there is a good chance interest rates will peak at 7 per cent or less. "I'm at the low end of the spectrum. If the retail sector moves up sharply or the housing market starts to take off, then interest rates would have to go up to 8 per cent perhaps. The economy is not uniform: there are hot spots and cold spots. It's a different environment from the go-go Eighties, when everything was crazy. This is more subdued. The 1990s w ill be more boring.''

Abbey National's chief economist, Margaret Schwarz, believes that house prices will rise slightly in 1995, by 4 per cent at the most to keep abreast of inflation. But price movements will vary significantly from region to region, with some areas seeing significant rises and others none at all. London will experience the strongest rises, and regions further away may not see any.

Abbey National's managing director, Charles Toner, says the fundamentals for the housing market look good, even if the mortgage rate rises, but he does not expect to see confidence in this market return.

By the end of the year Abbey National expects interest rates to be about 7.25 per cent, with the mortgage rate perhaps more than 9 per cent. Competition between lenders will remain tough, so good deals for home-buyers will remain.

Rob Thomas , housing analyst at UBS, expects house price rises of 6 per cent by the end of the year, with most of the rise taking place in the second half.

Ian Darby of the mortgage broker John Charcol expects interest rates of 7.25 or 7.5 per cent by the end of the year, with mortgages at 9.25.

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