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.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
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

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?