Mortgage lenders pass on rate rise

Homeowners were today facing further hikes in the cost of their mortgage after the Bank of England raised interest rates for the fourth time in seven months.

The Monetary Policy Committee's (MPC) decision to put up rates by 0.25% to 4.5% will cost homeowners with an average ?65,000 mortgage just over ?10 month.

If lenders pass on the full hike in rates, monthly repayments on a ?65,000 loan will increase to ?438.88 from ?428.78, based on a new rate of 6.5%.

But first-time buyers who are more likely to have a loan of around ?100,000 will see their repayments rise by more than ?15 a month to ?675.20, while those who are heavily mortgaged with a ?200,000 loan will need to find an extra ?31.

Homeowners have now seen cumulative rises of ?40 a month on a ?65,000 mortgage since November last year. And with analysts predicting rates could now end the year at 5%, they will have seen their repayments rise by ?60 a month since rates first began to climb.

Internet and telephone bank First Direct was today the first mortgage lender to announce it would be passing on the rise to its customers. The bank is increasing its offset mortgage rate by the full 0.25% to 5.25% with immediate effect. The group, which did not pass on last month's interest rate rise to borrowers, added that it was also raising its savings rates by a quarter of a per cent from July 5 for non-offset customers.

But all other major lenders, including Halifax, Nationwide Building Society, Cheltenham & Gloucester, Abbey and Barclays, had their rates under review.

HSBC said it was increasing all its saving rates by 0.25% from July 2, although it is still considering its mortgage rate.

Mortgage adviser Clear Cut Mortgages said the rate rise would mean repayments for someone taking out a new mortgage would rise to an average of 33% of gross pay, the highest level since 1993, and up from 29% last year.

Ben Thompson, director of Clear Cut Mortgages, said: "Today's rise is likely to hurt. Buyers are being hit with a 'double whammy' of house prices rising fast and interest rates rising together, the first time this has happened in the last decade."

Bob Pannell, head of research at the Council of Mortgage Lenders, said: "This rate rise is unlikely to be the last, and borrowers should arrange their finances to be able to cope with moderately higher rates over the coming year or so."

Martin Ellis, Halifax chief economist, said the latest increase should help to slow the housing market, but he added that there was no chance of a house price crash.

He said: "I think this rate rise, combined with the ones we have already seen, will start to constrain housing demand, and will result in a gradual slowing in house price inflation later this year.

"There is no chance of a crash. What we have seen is a very modest increase in rates and rates still remain very low in the context of the last 30 years."

Meanwhile, Peter Bolton King, chief executive of the National Association of Estate Agents, said the rise was not necessary to cool the market: "The feedback from our members indicates that the market in some parts of the country is beginning to level naturally. If the MPC have introduced this rate rise in an attempt to engineer the housing market it is unnecessary and not their brief. "The Halifax May index points to annual rises of 20% but we feel this is an exaggerated picture. Certain areas have come off the boil and the heat has also gone from the buy-to-let market - and at least this is good news for the first time buyers as the demand for cheaper property abates. "Any further hike in rates, as anticipated by the NAEA at the start of the year, could begin to sap the confidence of homeowners and buyers."