Banks bide time after rate rise

Borrowers and savers will have to wait and see what impact today's base-rate rise has on interest rates, with the situation under review by banks and building societies.

The 0.25% rise, which took many analysts by surprise, will not affect fixed-rate mortgages, loans and savings accounts but will have an impact on many variable rate deals.

Borrowers with tracker mortgages, where the interest rate paid is directly linked to the base rate, will pay more for their loans as a result of the increase.

However, the timing of the rate rise will vary. Nationwide building society, for example, has announced it will not pass on the extra change until September 1, but other lenders may increase rates immediately.

Andrew Hagger, spokesman for financial information provider Moneyfacts, said: "Normally it will say in the terms and conditions when any rate change will be passed on - usually it's within 14-30 days."

This applies to savings rates that track the Bank of England base rate, as well as mortgages.

Mortgages based on a lender's standard variable rate (SVR), which include many discount deals, are not so clear cut, nor are variable rate savings accounts.

Following this lunchtime's announcement most of the major lenders started to review their rates, and Halifax, Nationwide, HSBC, and Lloyds are all among those considering their next move.

"Some people will want to sit back and see what their competitors are doing and will take time to decide whether to increase the rate by the full amount," said Hagger.

Last time there was a base-rate change - this time last year when rates were cut - only 28 mortgage providers out of 120 on Moneyfacts's books announced their intentions in the first seven days after the change, Hagger said.

Meanwhile only 24 out of 100 savings providers announced what they planned to do in the first week.

So it could be a while before customers are sure what will happen, but it seems likely that most banks and building societies will change their rates as a result of today's decision.

According to Mark Chilton of broker Purely Mortgages: "Consumers not on tracker mortgages will not be immune to the MPC decision as lender's SVRs will almost certainly be increasing by a similar or even more significant amount over the next few days or weeks."

He estimates that someone currently paying 4.5% on a £150,000 interest-only mortgage will see their repayments increase by £31.25 a month if the full 0.25% rise is passed on by their lender. This will add £375 a year to the cost of their mortgage.

On a £100,000 mortgage, repayments will rise by £20.83 a month, while on a £200,000 mortgage they will be £41.67 a month higher.