Rate change race is on

The race is on as mortgage lenders announced an increase in the amount they charge in response to the recent interest rate rise. First to issue changes were Nationwide and Portman building societies and the Royal Bank of Scotland with its One Account. All of these are raising their standard variable rates (SVRs) by 0.25% in line with the base rate rise.

National Savings & Investments has also announced that the rate paid on its Direct Isa will rise from 5.8% to 6.05%, while holders of Icelandic bank Landsbanki's Icesave account will also get the full 0.25% rising to a new rate of 5.95% gross.

This hasn’t come as a surprise to the industry or to borrowers as interest rates go up to 5.5%, the highest in six years. Other banks and building societies are likely to follow suit and raise their mortgage rates in the coming days. From June 1st, the Nationwide base mortgage rate would go up from 6.74% to 6.99%. Put in economic terms, households with a typical home loan of £100,000 will see their monthly bills rise by just under £16. However, bear in mind that three previous interest rate rises in August, November and January, have meant that mortgage repayments for the average homeowner have increased by around £60 per annum.

The advice on the street is that people should think of moving from SVR mortgages and hunt around as they are missing out on £70, £80, even £100-a-month savings by not switching. There is a warning about fixed rate mortgages though. However much peace of mind a fixed rate mortgage will bring, another 0.25% base rate rise is already priced into most fixed-rate mortgage deals. Still, some competitive two-year fixed rates are on offer, albeit with high fees attached. Newcastle Building Society is offering a two-year deal at 5.07% with a £999 fee. Alliance & Leicester has one at 5.29% with a £999 fee - or 5.09% with £1,999 fee. Bradford & Bingley is offering a two-year fix at 4.99% with a £1,499 fee.