Abbey's pre-emptive strike with mortgage rate rise

Britain's second biggest mortgage lender, Abbey National, last night announced an increase in its fixed-rate home loans as it anticipated a rise in base rates from the Bank of England today.

With the City and industry almost unanimous in their belief that a quarter-point rate rise to 4.25% from the Bank's monetary policy committee is inevitable, Abbey jumped the gun with its new rates.

A three-year, fixed-rate mortgage will now cost 5.09%, the bank said.

The move came as the first day of the MPC's two-day meeting was marked by fresh evidence of a booming property market.

The Halifax said house prices rose by 1.8% in April and were up 19.1% on a year earlier - the fastest rate of growth since last August.

April's increase added £2,795 to the price-tag of a typical home and provided the latest evidence suggesting that the economy is growing strongly despite the two in creases in borrowing costs from the Bank since last November.

The City believes that interest rates will move steadily higher during 2004, and the Abbey said last night that it believed its new fixed-rate packages would still be attractive.

Angus Porter, the bank's customer director, said: "With predictions that there may be another increase in the Bank of England base rate soon, more and more people are drawn towards fixed-rate mortgages, knowing their monthly mortgage repayments will remain unchanged, regardless of any move in the base rate. Our rates are still competitive."

In recent weeks many banks and building societies have been frantically repricing their fixed-rate mortgage deals.

Last month saw many lenders pulling their cheapest deals as a result of Britain's money markets reacting to expectations that America's interest rates would rise sooner than previously expected.

Nevertheless, the timing of the Abbey move prompted some raised eyebrows.

The Halifax said it was the fifth month in a row that the annual rate of house price growth has risen, adding that there was "no sign of an imminent housing market slowdown".

The average cost of a home now stands at £154,304 - getting on for double the £81,595 a typical property could be bought for at the end of 1999.