The Sterling Crisis: Mortgage rises likely to be announced next week

Click to follow
HOME buyers were saved from the prospect of mortgage rates as high as 15 per cent by the Chancellor's announcement that yesterday's second rate rise in minimum lending rate would be cancelled.

However, borrowers can still expect a rise in the cost of mortgages, although the major societies will not reveal their new rates until next week, after the French referendum on Maastricht.

If base rates stayed at 12 per cent, mortgages could well be pegged at the same level. This would increase the cost of a pounds 60,000 endowment mortgage by pounds 59 a month to pounds 525. A 15 per cent rate would have added a further pounds 131. Even if base rates come down speedily to 11 per cent, mortgage rates will still have to rise.

Any rise will be a blow for the major lenders, who are desperately struggling to breathe some life into the stagnant housing market.

'It's a total disaster,' said Steve Wilcox, a housing analyst. 'It will drive down house prices, it will force up the number of borrowers in difficulties and bring further pressure for repossessions. The potential for a vicious spiral is quite frightening. It gets to the stage where you have to worry about the viability of financial institutions.'

Abbey National, Britain's second largest lender, said it would not make a quick decision on rates. 'Things are so crazy at the moment it would be unwise of us to make a snap decision. At least we have avoided the very worse.'

Mike Blackburn, chief executive of Leeds Permanent, said: 'We aren't going to make an instant decision.'

But a rate rise seems inevitable. Adrian Coles, director of external relations at the Council of Mortgage Lenders, said: 'Even if the French vote 'yes', I don't think rates will be back down to 10 per cent. It will be quite good to get away with a rate of 12 per cent.'

Andrew Longhurst, chief executive of Cheltenham & Gloucester Building Society, said: 'I would hope to see a period of reasonable stability on rates before we move at all. It would be invidious to have to move again.'

----------------------------------------------------------------- Monthly interest payments on a 25-year endowment mortgage (pounds) ----------------------------------------------------------------- Rate 10.65 (current) 11.5 12.0 30,000 199.70 215.63 225.00 50,000 377.20 407.30 425.00 70,000 554.70 598.96 625.00 100,000 820.95 886.46 925.00 150,000 1264.69 1365.62 1425.00 200,000 1708.44 1844.79 1925.00 -----------------------------------------------------------------