Lenders react swiftly to base rate rise

Mortgage borrowers on variable rate deals will pay an extra £20 on a £100,000 loan from next month.

Many mortgage lenders were quick to respond to last week's 0.25 per cent rise in base rates by announcing that they will pass the full increase to borrowers. Nationwide's standard rate variable mortgage is going up from 4.89 to 5.14 per cent, for instance. At Barclays and the Woolwich, the rate is rising from 5.79 per cent to 6.04 per cent, while the Halifax is raising its rate from 5.75 to 6 per cent.

The good news is that many savers will benefit from the base rate rise to 4 per cent. Tesco Personal Finance set a benchmark by announcing that all its rates on the Instant Access Savings Account would go up by 0.25 per cent from 1 March. It will pay 2.85 per cent gross on deposits below £3,000. Lloyds TSB is passing on the full increase to customers in its Plus accounts. The top rate from 1 March will be 4.75 per cent gross AER (annual rate) for customers opening accounts on or after 20 January this year and paying in at least £2,000 a month. Many institutions will announce their savings rate changes in the next fortnight to come into force on 1 March. 'Building societies have to put their new rates before their boards,' says Rachel Thrussell of research organisation Moneyfacts. 'Some will be working out how many customers they have on the different tiers and what they can afford.'

Many economists expect further base rate rises this year. Barclays and financial adviser Towry Law both predict a 4.5 per cent rate by December, while others think that 5 per cent is possible. Ray Boulger of mortgage adviser Charcol warned against taking out fixed rate loans now: 'Even after the rise, the best value mortgages are still trackers and discounted deals. Despite the likelihood of rates rising further in coming months, most fixed rates look expensive as they are already priced to reflect the City's expectations of base rate rising to 4.75 to 5 per cent over the next year.'