News: Winners and losers of the rate rise

Mon, 14 May 07

It could have been worse. That's what many home owners will be thinking after the Bank of England raised interest rates by 0.25% to 5.5% on Thursday...

Everyone was expecting a rise, but at least it wasn't the half-point hike that some were talking about.

This latest increase means a borrower with a typical £100,000 variable rate mortgage will be forking out around £64 more on monthly repayments than last summer. But what about those looking for a mortgage?

The bad news is that another 0.25% base rate rise (i.e., to 5.75%) is already priced into most fixed-rate mortgage deals. The good news is that there are still some competitive two-year fixed rates on offer, though many come with high fees attached.

Newcastle building society is offering a two-year deal priced at 5.07% with a £999 fee. Alliance & Leicester has one at 5.29% with a £999 fee - or 5.09% with a hefty £1,999 fee. Bradford & Bingley is offering a two-year fix at 4.99% with a £1,499 fee.

FTB should protect themselves against ‘nasty shocks’

Many first-time buyers should probably consider fixing their mortgage payments to protect themselves from any nasty shocks, but because the bank base rate is probably close to its peak, borrowers who don't need the security of a fixed rate are likely to get better value from a tracker mortgage, so that they will benefit from any falls next year, says Ray Boulger at broker John Charcol.

Good two-year base rate trackers start even lower - at base rate minus 0.81% from BM Solutions, i.e. a current rate of 4.69%. However, to get this rate, you must pay a 1.25% fee.

Nick Gardner at rival broker Chase De Vere Mortgage Management agrees that it may make sense to take a variable rate loan now.

Traditionally, savers often have to wait weeks for banks and building societies to pass on an interest rate rise.  Some, of course, never do pass it on.

However, the fact that this week's hike was so widely anticipated means several providers were very quick off the mark. National Savings & Investments says the rate paid on its Direct Isa will rise from 5.8% to 6.05% with effect from May 10, while holders of Icelandic bank Landsbanki's table-topping Icesave account will also get the full 0.25%; its new rate will rise to 5.95% gross on May 18.

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