Lenders follow Bank with mortgage rate rise

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The Independent Online
MILLIONS OF homeowners will have to pay higher mortgage bills after Abbey National and Halifax decided to pass on last week's rate increase by the Bank of England.

The former building societies said they were raising their standard variable mortgage rates by 0.25 percentage points. The Bank of England's Monetary Policy Committee raised the base rate last week by 0.25 points to 5.5 per cent.

Other lenders are expected to follow the banks' lead but Nationwide, the UK's biggest building society, said it waskeeping the situation "under review".

Both banks are raising their variable rate to 7.24 per cent from today for new borrowers and from December 1 from existing customers. Nationwide has different rates for loans above pounds 60,000. Abbey said the increase would add pounds 2.74 a week for a borrower with a pounds 60,000 interest-only mortgage.

Andrew Pople, Abbey's retail managing director, said: "The MPC has again signalled its concern over an overheating housing market by increasing its base rate by 0.25 points. Abbey National has responded to that move." Both banks said they would increase their savings rates from 1 December but gave no details.

The rise in mortgage rates is unlikely to be the last in the short term. Economists believe base rates will have to rise again in the new year to dampen down inflationary pressures that are feeding through as the economic recovery accelerates.

Figures published yesterday showed prices charged by manufacturers were continuing to rise. Prices of goods leaving the factory gate were up 1.9 per cent compared with a year ago - the highest annual rate of increase for almost three years. The cost of raw materials and wages rose 6.3 per cent in the year to October, up from 5.8 per cent in the previous month and the highest rate since 1995.

Richard Iley, an economist at ABN Amro, said forecasts that inflation would continue to slow now looked doubtful. "With pressure building on manufacturers' total costs, output prices are edging higher," he said.

Meanwhile confidence among small and medium-sized manufacturers has risen for the first time in more than two years, according to a survey by the Confederation of British Industry.

The high street also showed signs of recovery with the value of sales rising 4.7 per cent in the year to October, the highest since March and the third consecutive rise.

Surging house prices in southern England are creating a shortage of affordable homes, a report warns today. Prices of homes in the South- east are on average five times higher than mean annual incomes, according to the National Housing Federation.