Rates up by quarter point in Bank's first independent rise

The cost of home loans went up yesterday after the Bank of England increased interest rates to 6.5 per cent following the inaugural meeting of its monetary policy committee.

At the end of the two-day meeting the seven-strong committee voted for a quarter-point rise in interest rates - the first time since 1945 that the cost of borrowing has been changed without government instruction.

The Halifax and the Abbey National immediately announced that they were increasing mortgage rates by 0.35 per cent. Other lenders are expected to follow suit.

The increase takes the monthly cost of a pounds 50,00 repayment mortgage to pounds 358.85 - a rise of pounds 10.27. The repayment on a pounds 100,000 loan rises by pounds 21.78 to pounds 740.87.

The Bank said it had raised rates because there was a need to keep inflation in check. Eddie George, the Governor of the Bank and chairman of the monetary policy committee, warned earlier this week of the inflationary effects of the pounds 30bn building society windfalls.

This is the second quarter-point increase in base rates since Labour came to power. Mr Brown first raised rates a month ago on the same day he announced the Bank's operational independence to set monetary policy. The consensus in the City was that the increase was sensible given the need to choke off the threat of higher inflation. But there was an angry reaction from industry, fearful that the rate rise will strengthen the pound further and harm export prospects.

Business, page 24

How the increase affects mortgages

Amount 7.6% 7.95% Monthly

Increase

pounds 20,000 pounds 136.13 pounds 139.91 pounds 3.78

pounds 30,000 pounds 204.20 pounds 209.87 pounds 5.67

pounds 50,000 pounds 348.58 pounds 358.87 pounds 10.29

pounds 70,000 pounds 499.41 pounds 514.33 pounds 14.92

pounds 90,000 pounds 650.24 pounds 669.80 pounds 19.56

pounds 100,000 pounds 725.66 pounds 747.53 pounds 21.87

pounds 150,000 pounds 1,102.74 pounds 1,136.19 pounds 33.45

pounds 200,000 pounds 1,479.82 pounds 1,524.85 pounds 45.03

*25-year repayment mortgage. Source: Halifax