Waiting for a rise

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The Independent Online
BY SIMON PINCOMBE

Thursday's half-point cut in German interest rates has probably done no more than delay the next rise in UK base rates, and with it a likely further hike in mortgage rates.

While the cost of three-month money was hovering just below UK base rates at 6.625 per cent yesterday, most brokers are still predicting that the next move will be up.

But Gary Marsh, chief economist with Halifax, Britain's largest building society, was more hopeful. "There may be a further half or one point to go,'' he said, "but there is an argument that UK rates may have peaked. It all depends on the performance of the economy.''

He added that a further rise in base rates would not automatically trigger an immediate increase in mortgage rates because of the sorry state of the housing market.

From today most borrowers will find themselvers paying an average £10 a month more on their mortgage bills as the reduction in mortgage interest relief announced in the Budget starts to bite.

Earlier this week - before the German rate cut was announced - National Westminster Bank warned that the Government would be forced to provide some relief for the housing market in the face of the need to increase UK rates.

Mr David Kern, NatWest chief economist, believes base rates will peak at 7.75 per cent compared with 6.75 per cent at present.

He argued that the government should consider giving support to first- time buyers and homeowners with negative equity and raising the threshold for stamp duty.

Borrowers looking to fix their mortgages will get good value at below 9 per cent for five years and 5.5 per cent for two years. But brokers warn to be on the look-out for charges and "lock-in'' clauses.

Cheltenham & Gloucester this week offered a three-year fixed rate at 7.99 per cent with no strings attached.

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