Early Interest Rate Rise

Many homeowners have had an unwelcome start to 2007 as mortgage payments are set to increase.

The Bank of England has surprised many people by announcing an increase in UK interest rates from 5% to 5.25%. Although another rate rise was forecast for early this year, it was not expected until next month. This is the third increase in five months and the aim is to curb inflation, which is at the highest level for 10 years. Currently at 2.7% the inflation rate is above the government target of 2%, and is expected to show a further increase when figures are published later this month.

Homeowners with a £100,000 repayment mortgage will need to find another £16 per month after the latest rise and some experts think that the interest rate is likely to increase further in the near future. The Council of Mortgage Lenders has warned that those with variable rate mortgages need to consider this possibility when looking at their personal finances.

Although the latest rate increase is not good news for mortgages, savers will benefit from increased rates on savings accounts, if banks and building societies pass on the rise.

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