More lenders push up mortgage rates

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The Independent Online
A week after the Bank of England raised interest rates, the Halifax and the Nationwide Building Society both announced increases in their mortgage and savings rates yesterday.

The decision had been expected after other lenders, notably Abbey National and Cheltenham & Gloucester, raised their mortgage rates in the immediate aftermath of the Bank's move.

The news came as share prices and the pound retreated from their recent highs. The FTSE 100 index ended more than 15 points lower at 4,949, having failed to breach the 5,000 barrier.

Sterling lost nearly two pfennigs against the German mark to close at just under the symbolic DM3 level. Rumours of Bank of England intervention, along with a warning from the Bundesbank President, Hans Tietmeyer, that the markets should not take the exchange rate "correction" too far, prompted some profit-taking.

Mike Blackburn, chief executive of the Halifax, said: "Although our borrowers will see a small increase in their monthly payments, this should have little impact on the steady and sustainable recovery in the housing market."

However, one investment bank warned yesterday that there was no sign of a general pick-up in the market. Although house price inflation had risen, other indicators such as the number of home sales were stable at best, according to economists at Nikko Europe.

"The robustness of the recovery in the housing market in 1996 is unlikely to be repeated over the next few years," said head of research Simon Briscoe. Rising mortgage rates and the Budget reduction in mortgage interest tax relief would weaken its recovery, he predicted.

The Halifax, with 2.5 million borrowers, announced its standard variable mortgage rate would rise by 0.25 percentage points to 8.2 per cent. The typical monthly increase will be pounds 7.40.

The Nationwide's million borrowers face an increase of 0.5 per cent to 7.85 per cent, with the society making up for not moving last time around. A home-buyer with a typical pounds 50,000 repayment mortgage will pay an extra pounds 14.50 a month.

Separately, official figures suggested the strong pound has started to bite into export orders. Turnover in the engineering industry rose by 0.4 per cent in the three months to May. A 2 per cent advance in export sales more than offset a 0.8 per cent drop in home sales. However, total turnover was 0.2 per cent lower than in the same three months a year earlier. Compared to last May, export orders have fallen 11.3 per cent.