Mutual societies raise mortgage rates

MUTUAL building societies yesterday announced higher interest rates for home owners as they relaxed from a year-long campaign to prove the benefits of mutuality.

Bradford & Bingley is boosting rates by a quarter of a point to 8.7 per cent after holding back for two months after the last rise in base interest rates.

The B&B rise comes into immediate effect, boosting the cost of the average variable mortgage of pounds 50,000 by around pounds 10 a month.

The society's announcement was closely followed by a larger increase from Nationwide, which will boost its variable rates from 8.1 to 8.5 per cent from 1 September. Yorkshire building society raised its rates on Tuesday from 8.25 to 8.5 per cent.

In the run-up to Nationwide's crucial vote last month on whether to become a bank, societies had promised to hold their rates until 1 August.

The rises come in the middle of one of the slowest months of the year for mortgage sales, and follow the decision not to raise rates by the Bank of England's Monetary Policy committee on Thursday.

Variable mortgages with Nationwide and Bradford & Bingley are still significantly cheaper than those from former societies which have converted to banks, most of which have headline mortgage rates of 8.95 per cent.

The building societies have sought to maintain their competitiveness in the savings market, boosting rates on deposits while holding them back on mortgages.

Bradford & Bingley has calculated that it returned pounds 85m of profits to its savers and borrowers last year.