House buyers shrug off the rate rise

Standard Life Bank insisted yesterday that there was little evidence of any slowdown in the housing boom as it, and two of its closest rivals, raised mortgage rates in response to last week's unexpected interest rate increase by the Bank of England.

The company, which in nine months has secured a 15 per cent share of the market, claimed it was approving £27m of mortgage business a day last week and took in £35m worth of business between Friday and Saturday.

The bank, which has offered some market-leading rates through its flexible mortgage, yesterday raised its standard variable rate by 0.22 per cent to 6.1 per cent, the highest increase of any of the major lenders after last week's rise in the official base rate to 5.25 per cent.

The increase - significantly higher than the 0.16 per cent rise from Halifax, and the 0.14 per cent rise announced by Abbey National and Cheltenham & Gloucester yesterday - will fuel fears that the interest rate gap between the cheap new entrants and the traditional lenders could narrow further if more rate rises come through from the Bank of England.

However, Standard Life Bank claims that it remains competitive compared to high street lenders. Its 6.1 per cent standard rate compares to 6.99 per cent at Halifax and Abbey National, and 7.05 per cent at Northern Rock, but is only 0.35 per cent ahead of a raft of building societies such as Nationwide, which is keeping its rate at 6.45 per cent.

Standard Life Bank has also used the rate increase to widen its margins between savings and mortgages. While homeowners must pay an extra 0.22 per cent, savers will see only an extra 0.17 per cent on their accounts, taking the maximum interest paid to 5.45 per cent. The small rise is in contrast to Prudential's egg, which yesterday improved the rate on its internet-only savings account by 0.25 per cent to 6 per cent.

The bank has also reduced the discount it offers to 0.88 per cent from 1.33 per cent - a move double the Bank of England change.

Jim Spowart, managing director of Standard Life Bank, said that despite the rate moves, applications were "still coming in droves".