There may be bad times ahead for homeowners

The first half of the year has been a good time for homeowners. Interest rates were cut three times, bringing the base rate from 6% in January to rest at 5.25% last month. And, as a consequence, monthly mortgage payments have come down. This month, however, could see a turning point in the fortunes of homeowners.

While an interest rate hold might not spell immediate bad news for borrowers, today's decision is significant in that it is a firmer indication that the tide may be about to turn and that falling interest rates have come to an end.

Last month, when rates were put on hold, it was widely believed the Bank of England would follow this move with a further rate cut later in the year.

However, the last month has seen a raft of somewhat surprising economic data published, which meant further rate cuts now look unlikely. Inflation was at a higher level than analysts predicted and the retail sales figures for May, issued by the Office of National Statistics two days later, showed a level of spending also much higher than analysts expected.

Instead, many analysts are now predicting that rates will move upwards by the end of the year (although the base rate is unlikely to reach the 6% level that it reached at the end of 2000).

Fixed rates on mortgages already started to creep up last month, with Halifax, Alliance & Leicester, Abbey National, Cheltenham & Gloucester, Woolwich, Bristol & West and NatWest, all announcing fixed rate increases of between 0.1% and 0.35%.

Borrowers on variable rates will no doubt be beginning to feel edgy at the news they could see their monthly payments rise just before Christmas. But with fixed rates edging up and variable rates having just dropped following the last rate cut, the average short-term discount rate is still 0.5% lower than the average fixed rate.

Borrowers on a variable rate who can afford to ride any interest rate rises may therefore be better staying with that loan. However, if rate rises would mean a struggle to pay the extra, now could be the time to move to the security of a fixed-rate deal.

But, as ever, where there are losers there are inevitably winners, and by the end of the year, this month's rate decision is likely to mean good news for savers.

A further rate cut would have been especially bad news for those with cash on deposit, as interest rates on savings accounts are already at an historical low. At present, the average net interest rate on a 90-day notice account with a balance of £5,000 is 2.98%. The only time it has been lower than this in the past 20 years was two years ago when it fell to 2.50% when the base rate was also at 5.25%.

Now, for the first time this year, savers are faced with a likely rise in rates by the end of the year. And, if this does happen, savers would be well-advised to keep an eye on their accounts. Not all banks and building societies will pass on a full rate rise to customers, but if this is the case, savers should act quickly and move to a better account to make the most of their money while they have the chance.