Mortgages to rise as bank rate hits 4.75%

Millions of homeowners are preparing to pay higher mortgage bills after the Bank of England unexpectedly ordered a hike in interest rates.

It said strong economic growth combined with rising inflation and a recent surge in house prices and mortgage lending had put its inflation target under threat. The rise in the base rate from 4.5 to 4.75 per cent will add to the financial burden faced by households already struggling to meet soaring utility and council tax bills.

The London stock market fell almost 100 points and the value of the pound soared on fears that this was only the first of several increases in borrowing costs. The Bank blamed rising oil prices for pushing inflation well above the 2 per cent target. "Inflation is likely to remain above target for a while," it warned.

Mortgage lenders are certain to follow suit. Nationwide building society, Halifax, Abbey National and Northern Rock said they were reviewing their rates.

Housing industry groups condemned the move. "The market has been healthy and steady [so] this week's rate hike is totally unnecessary," said David Newnes of Your Move estate agents.