Your Money: End of the world as we know it

Savers and borrowers face months of uncertainty after last week's interest rate rise.

Millions of savers and borrowers will face months of continuing interest rate uncertainty as money markets come to terms with the increasingly frenzied run-up to the General Election.

Last week's decision by the Chancellor to raise base rates by a quarter percentage point, to 6 per cent, was generally welcomed as a sensible move.

Major mortgage lenders, including the Halifax and Abbey National, said they were not planning to raise variable rates from their existing levels, hovering at or just below 7 per cent - at least until the Budget on 26 November.

Gary Marsh, an economist at the Halifax, says: "Rates are probably going to steady now, depending on what Mr Clarke does in the Budget.

"We are probably looking at a slight move upwards to 7 per cent or slightly above that by the end of the year, irrespective of who wins the election."

Mr Marsh says the Budget is likely to influence a decision on base and other rates because of the way the City will view any attempt to deliver tax-cutting measures without attempting to reduce spending.

"If there is a tax-cutting Budget which simply pressures up inflation, then there will also be pressure for rates to go up," Mr Marsh says.

He adds that for the foreseeable future there is little likelihood of savings rates rising in line with the base rate increase: "Everyone tinkers a bit with their rates on some of their deposits from time to time.

"We have increased one or two of the rates on our Liquid Gold Account. But we would need to see fairly substantial increases in base rates, with a corresponding effect on mortgages, before rates go up across the board."

His comments come as Leeds & Holbeck announced it was responding to the rise by increasing the amount paid to savers on its two and three-year fixed rate bond.

Over two years, the society will pay 7 per cent gross on deposits of more than pounds 10,000, up 0.35 per cent. Over three years, the rate on the same deposit rises from 7.05 per cent to 7.25 per cent.

While both savings and mortgage rates may remain unaffected for the moment, experts predicted yesterday that last week's shock decision by the Chancellor will have an effect on the type of loans demanded by borrowers.

Chris Scales, head of development at Mortgage Intelligence, which has 400 mortgage brokers nationwide, says: "We talk to our advisers every day and they are telling us that in the past two or three days there has been a tremendous change.

"People are beginning to realise that interest rates have bottomed out and are now likely to start drifting back upwards. As a result, there is an upsurge in interest in longer-term mortgages, over four years or more."

Mortgage Intelligence is offering a four-year Bristol & West mortgage, fixed at 6.99 per cent, with an arrangement fee of pounds 275.

The rationale in favour of a slightly shorter time-frame for the fix is that it takes a borrower to about a year before the next General Election when, if the present one is any guide, rates will be lower. Borrowers will then be in a position to make a fresh choice of loans at that point.

Ian Darby, marketing director at John Charcol, the UK's largest independent broker, agrees with the perception that rates may now be at the bottom of the cycle.

He says: "Until recently, the idea of a discounted mortgage was still attractive. That is far less so as people begin to see that rates are likely to move back up - and so will their mortgages."

Mr Darby says any increase in mortgage rates should not have a major impact on the housing market itself, because the issue was one of affordability overall, which is not just determined by interest rates.

Among the good-value deals available through most mortgage brokers or Lloyds Bank branches is a Cheltenham & Gloucester home loan, fixed for five years at 7.25 per cent.

The loan carries a six-month interest penalty for early redemption and involves a pounds 495 up-front reservation fee even if the loan is not proceeded with. But it also offers a free valuation and carries no mortgage indemnity guarantee (MIG), which can save many hundreds of pounds.

John Charcol is also offering a five-year capped mortgage, which means rates are free to rise and fall under a ceiling of 7.99 per cent over that period, but will not increase above it. The mortgage allows for a review after three years, with just one month's interest penalty thereafter.

A final component of the base rate rise could be its effect on credit cards and loans. Barclaycard announced last week it would not increase rates.

Hugh Titcomb, senior banking manager at Save & Prosper, which offers one of the cheapest Visa and Mastercard cards on the market, charging 14.6 per cent, says: "I would be surprised if any company decided to move upwards on this occasion.

"Most providers already charge at least 18 or 19 per cent, with major high-street banks above that. They can afford to meet the increase in base rates on their existing margins. One could argue that given the fantastic margins they already have, they should easily be able to."

q Contacts: Mortgage Intelligence, 0800 246000; John Charcol, 0800 718191.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas