Home groans as big lenders follow the Abbey's rate rise

Mortgage rates are moving upwards across the board, with four lenders raising rates yesterday. They were led by Abbey National, which confirmed an increase in its standard mortgage rate for loans of less than pounds 60,000 from 7.04 per cent to 7.29 per cent, effective immediately for existing borrowers and with effect from 18 December for new customers.

Abbey National's announcement follows moves by the Nationwide and Birmingham Midshires, which raised standard rates immediately after the increase in base rates last month. But the Nationwide, the largest of the committed mutual societies, raised its rate from only 6.74 per cent to 6.99 per cent and was only catching up with the market.

Abbey National was already one of the dearer lenders and its decision to increase rates for the first time in two years breaks new ground.

Officially the market leader, the Halifax Building Society, says it will wait until the next meeting of the Chancellor and the Governor of the Bank of England on 11 December, when they discuss base rates, before deciding whether to raise its rates, and by how much.

But the Abbey National's decision is already putting pressure on the smaller societies. The Coventry Building Society yesterday increased its privilege rate for established borrowers to 6.50 per cent and its standard variable rate for new and recent borrowers to 7.25 per cent, both increases of 0.26 per cent effective from 1 January.

Some lenders are already anticipating a further rise in base rates from 6 per cent to 6.25 per cent next week. Northern Rock yesterday raised its privilege rate for established borrowers to 6.99 per cent and its standard rate to 7.49 per cent with effect from 1 January. Both rates are going up by 0.5 per cent.

Mortgage rates are being increased to pay for increased payments to savers. But lenders are deferring a decision on how much more to offer savers.

The Abbey National expects to announce new savings rates this week but has already said increases will range from 0.05 per cent to 0.25 per cent. Coventry Building Society will review rates for savers later this month and Northern Rock will announce new savings rates on 13 December.

Demand for fixed-rate mortgages has trebled in the past month, and many of the more attractive offers are being withdrawn. Bristol & West withdrew its cut-price rate of 4.74 per cent fixed for two years last week.