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Bank of England: Interest rates to go up

Thursday, 3 August 2006 12:00 AM

Mortgage holders will have to pay more after the Bank of England's interest rate setting Monetary Policy Committee (MPC) put interest rates up from 4.5 to 4.75 per cent today.

In a statement, the bank said their decision was down to the pace of economic activity quickening over the past few months and a recovery in household spending from a post-Christmas dip.

The base rate is now at a five-year high, and the increase is expected to add around £250 a year to a £100,000 mortgage.

Neal Pritchard, managing director of online mortgage advice provider Moneypilot.co.uk, said: "It's at times like these that people start to worry about the impact a rate rise will have on their mortgage and family finances.

"We would always recommend that people review their paperwork, check whether they are on a fixed or variable rate deal, and get some advice about the best route for them.

"The mortgage market is still very competitive and there are some great deals to be had if you shop around."

Ray Boulger of mortgage adviser John Charcol said: "Swap rates [which determine fixed-rate mortgages] continue to fluctuate and therefore being able to catch a good fixed rate is becoming even more challenging.

"For those who can afford to take a view on interest rates the best trackers still look competitive with fixes even if rates go up a further 0.5 per cent, which seems very unlikely."

He added: "An ideal combination is a tracker or discount with a droplock facility, allowing the borrower to switch to any of their lender's fixes in the future if and when they consider the fixed rate offers better value."

Mehrdad Yousefi of Alliance & Leicester supported Mr Boulger's advice: "Homeowners and prospective purchasers who are looking for stability in monthly payments can take advantage of the short term fixed rate deals currently available in the market and there are still plenty of competitive base rate trackers to choose from."

The last change in interest rates was a reduction of 0.25 per cent points to 4.5 per cent on August 4th 2005.

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