Two mortgage rises `before end of summer'

MILLIONS of mortgage-holders, already hit by one recent interest rate rise, face at least two more increases this year, experts predict. The first round will be in the next six to eight weeks, as lenders push up rates in response to last week's base rate rise. The second will take place by the end of summer, should Chancellor Kenneth Clarke give the order for another upward move in base rates, as many analysts now expect. By then, mortgage rates will have risen to 9 per cent, adding a further £8 a month to a £30,000 mortgage and £14 to a loan of £50,000. The result, some experts argue, is likely to be a relatively static housing market in 1995.

The most bullish expectation, by UBS housing analyst Robert Thomas, is for an increase in prices of about 6 per cent. Others say any rise would be between nought and 2 per cent.

Predictions of a mortgage rate increase came despite denials by large mortgage lenders that they are planning to push up the cost of home loans.

Charles Toner, managing director of the retail division at Abbey National, which has 1.2 million borrowers, said: "We have decided against changing our rates at this time. We intend to maintain this position as long as competitive pressures allow. We seelittle case for changing rates in response to increases in base rates."

Gary Marsh, head of research at Halifax, said: "There is less pressure on us to raise rates in the face of last week's base rate rise. Savers' outflows have not been as great as they were just before Christmas." But he predicted that mortgage rates couldhit 9.5 per cent before the end of the year, in the wake of a series of base rate rises from 6.75 per cent to 7.5 or even 8 per cent.

James Barty, UK economist at Morgan Grenfell merchant bankers, said: "Lenders said they did not intend to raise mortgage rates at Christmas and did so within a couple of months. I would not be surprised if they did not do the same again. Societies are right in saying that the outflow of funds into investments like unit trusts has slackened off. But there is likely to be £5bn raised by the Government in the rail and power privatisations. The money has to come from somewhere."

Hamish McRae, page 4

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