How to win the rate rise war by Finance News Bulletin

Published: 18/01/07

The shock go up in Bank of England base rate is a call to action for savers and borrowers Tony Hazell and Sylvia Morris explain how to manage with your mortgage and reap the utmost rewards from your savingsSTRIKE IT RICH: thrashing the rate rise won't make you a millionaire but it will put a small extra cash in your pocketLenders have been whipping their fixed-rate mortgages off the shelves with almost inappropriate haste this week as borrowers scramble to protect themselves from further potential increasesThis has led to accusations that some are profiteering by selling old fixed-rate money at senior prices But the speed rise that caught bor-rowers on the jump also took lenders by surprise

Yorkshire BS spokesman David Holmes says they inward 600 applications for fixed rates over the weekend, by up available money and forcing them to withdraw their variety of mortgages on Monday'Our profit margins on the novel range will actually be lower than on the old one,' Mr Holmes saysNew deals at senior rates will be launched on Friday Other lenders have been strained to follow suit, especially smaller building societies which reserve only small mathematics for fixed rates

But are homebuyers panicking without cause Lenders raise the cash for fixed-rate mortgages on the cash markets, where traders speculate on where interest rates will move in the prospectMoyeen Islam, set interest strategist at Barclays Capital, specialises in interest speed trends He says: 'The markets are currently looking at a acme in base rates of 5

6% That would suggest another 025% increase in April or May but another rise after that is not certain The peak could be around September or October with tax easing back thereafter

'Nonetheless, with Halifax's bench-mark standard variable mortgage rate due to go up to 725% from February 1 and Nationwide's to 674%, fixed tax at or around Bank of England base rate seem good value, say brokers A mortgage speed of 7

25% puts monthly repayments on a £100,000 loan at £723 — £48 higher than they were at the start of August Two more 025% increases would push them to £755Most of the cheapest two-year fixes are at just over 5%, but these are being pulled rapidly and replaced with more costly deals — though still well below the standard variable speed

For instance, Nationwide's will go at the close of business on ThursdayThis is Money is packed with information, advice and tools that can help you get ahead and save cashYorkshire says two-thirds of its applications since the rate rise have been for five and ten-year fixes, where before borrowers were opting for shorter term contracts The society's new ten-year contract at 5

35% with a £595 charge is actually cheaper than its new two-year repair at 539% with the same feeNorwich & Peterborough comes in at a similar level over ten natural life at 534% with a £399 charge

Leeds BS still has a ten-year contract at just 499%, with a £749 fee, though this will be withdrawn on Saturday With no fee the speed is 549%

The base rate would require to fall by 025% eight times to give any chance of the criterion variable speed hitting these levels and even then there is no assurance lenders would pass the cuts onAny move by borrowers towards longer term fixed rates will please Chancellor Gordon Brown, who is keen to see more use of these goods which the Government suggests could bring more stability to the housing marketplaceLinda Davidson, 20, and Ian Furness, 29, took a five-year fixed-speed mortgage before the August speed rise and the following ones in November and this month

The couple (left), from Porthmadog, North Wales, bought their first house - a two-bedroom patio - for £77,500 with a 95%mortgage with Northern astound, securing their repayments at a rate of 589% for five yearsLinda, a credit controller, says: 'I'm happy we chose the fixed speed after last week's news We went for a fixed rate because we required stability and to know we could have enough money our repayments each month

'We did not consider a variable rate because we wanted to be acquainted with each month precisely how much we had to spend Given the increases, we would have struggled with our repayments had we not fixed'• university teacher't panic and rush into a deal that isn't correct for you Once new rates are announced they are probable to be around for a few weeks

• Consider your personal situa-tion • If you want long term constancy then a five or ten-year fixed rate may set of clothes But if you believe tax may peak this year and are willing to take a risk, then seem at two-year deals• Watch out for high cost

Some lenders are keeping rates low by charging fees of £999 Our best pay money for tables characteristic the best two and five-year fixes and show the complete cost of borrowing, counting fees• Tracker mortgages may be worth considering for some You will have to pay more if interest rates rise further but will also benefit if they begin to drop next year

• IF you take a fixed rate you must stick with it because there will be hefty cost for coming out during the fixed term• Fixed-rate deals depend on what is happening on the money markets, not directly on base speed movements As soon as th he cash markets expect rates to f fall in the future then the cost of f fixed-rate deals should start to drop — — though that may not be for some t time yetMost savers are still to come to hear how much of last week's 0

25% rise in base rate they will seeBanks and structure societies often make them wait a month for their additional cash And when the e increase comes, it is often less than an the rise in base speed Most will have to wait until the beginning of Feb bruary to see their tax rise

Some savers have failed to advantage from the full 075% go up in Bank of England base rate to 525% since last AugustIn the worst luggage, only 0

05% of the last two 025% base rate rises in imposing and November last year have been approved on Banks and building societies don't always treat all savers the same, raising tax on some accounts by more than others For instance, Abbey Postal savers saying the full 05% rise in Bank of England base rate last year, but those in its saver Account, saver 60 and Flexible Saver saw just 0

05%Halifax immediate Saver account holders are so far 001% better offand Premium investments Direct 015%, while Extra profits Savers have benefited by as much as 0

65% before tax countrywide has, however, pledged to give all savers the full 025% this occasion roundOther savers have enjoyed the full 0

75% rise in their investments rate already National Savings & savings has passed on the three suc-cessive base speed rises in full to those in its tax-free straight Isa account They earn 58% from last week, up from 5

05% Marks & Spencer has also raised its money Isa speed to 525% from last weekRebecca Colebrooke, 26, has already benefited from last week's surpgo up 0

25% base rate go up The rate on her money Isa with Marks & Spencer went up by 025% to a tax-free 525% from last Friday

investigate scientist Rebecca, from Haverhill in Suffolk, who has recently over her PhD in biochemistry and pharmacology, says: 'I opened this explanation in April 2004 and picked it because it has a guarantee which links the speed to base speed It means I don't have to timepiece the rate all the time' results & Spencer pledges the rate will at least competition base rate until December 31, 2007 Unlike most other banks and building societies, it also promises to move the speed within five working days of a base speed change, so Rebecca will not have to wait until the beginning of next month to advantage from the latest base rate rise

• Check your investments rates now and at the beginning of next month If you are earning less than 45% before tax in the far above the ground Street or 5% on an easy access telephone or internet account, button to a bet-ter deal (see bench, Page 48)• Beware of marketing tricks

Some accounts such as Alliance & Leicester's straight Saver, First straight's e-savings and HSBC Online Saver pay out no interest on any of your money in months when you make a withdrawal Others increase the rate by adding a short-term bonus They hope to lure you in with a top caption rate and hope you won't notice when the bonus disappears, leaving the account much less attractive• choose an account which links your interest to base rate or one which has a long-term record of paying consistently good tax

There are tempestuous times ahead for borrowers, with economists predicting that the base rate could go up at least twice more But savers — who outnumber borrowers — will be friendly the news Roger Bootle, economic consultant to consultants Deloitte, says: 'I think interest rates will rise to a acme of 55% in the first half of this year, possibly as near the beginning as next month

They could rise even further; 6% is not a stupid figure' Other economists also expect further rises Simon Ward, chief economist at fund manager novel Star, one of the few to predict last week's shock rise in base rate, also expects tax to rise to 55%, but not in the next few months

Trevor Williams, leader economist at Lloyds TSB Corporate Markets, also predicts a go up to 55% He says: 'That should be the peak, with the rise coming in the next four months, probably in May I think there is a 20 to 30% possibility that base rate could rise to 5

75%' But John Butler, European Economist at HSBC, disagrees He thinks salary inflation, one of the main concerns of the have an account of England, will not be sufficiently strong to push up the cost of livelihood He says: 'I think the base speed has peaked at 5

25%'Select a loan term 12 months (1 day 24 months (2 natural life 36 months (3 natural life 48 months (4 natural life 60 months (5 natural life 72 months (6 natural life 84 months (7 natural life 96 months (8 natural life 108 months (9 natural life 120 months (10 years)Please select a type of insurance existence insurance house and contents Car Breakdown services Health - medical Health

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