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Interest rates put up to 5.25%

Thursday, 11 January 2007 12:00 AM

The Bank of England has surprised experts and put interest rates up to 5.25 per cent today, raising them 0.25 percentage points.

Mortgage holders will be hit with a third rise in the rate of borrowing since August 2006, a move that has been greeted with mixed reactions from industry experts.

Most predict today's interest rate rise will dampen house price growth, and in particular deter first-time buyers.

The Royal Institution of Chartered Surveyors (Rics) said they expect the rise to slow down housing demand.

"With interest rates now up twice in three months (the last being in November) it is quite likely that housing demand will start to fall back.

"Affordability conditions for first-time buyers will continue to worsen due to higher mortgage interest rates and this will continue as further interest rate rises are likely in 2007," commented Milan Khatri, Rics chief economist.

However, first-time buyer property website FirstRungNow.com said today's rate rise was a good thing for those trying to get onto the property ladder.

"For those aspiring first-time buyers waiting to be able to afford their first mortgage and despairing of the fact that the first rung of the property ladder is disappearing over the horizon, today's surprise rise is good news," said Helen Adams of FirstRungNow.com.

"The cooling effect on the UK property market when combined with the last fairly recent rise hopefully means that first home prices might falter, giving first timers a chance to take that much desired first step."

Looking to the future, Alliance & Leicester advised homeowners to be ready for another rise.

"It is widely anticipated that interest rates will not rise to more than 5.5 per cent in 2007, so homeowners should bear this in mind and ensure they will be able to withstand any future rises," said Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester.

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