Rates blow for homeowners

Millions of homeowners will pay higher mortgage bills after interest rates went up again today by a quarter-point.

It will mean £15 a month extra on a £100,000 variable rate mortgage after the Bank's monetary policy committee raised the base rate from 4.5 to 4.75 per cent.

The committee took action for the third time in four months in an attempt to cool the housing market and rampant consumer debt and keep a lid on inflation.

Today's decision follows evidence that consumers have failed to respond to previous increases. More increases are expected, with rates expected to end the year at 5.25 per cent.

In a statement, the Bank said that although the housing market remains buoyant, there were now signs that it was starting to ease and the growth of consumption may be moderating.

But the bank said that "continued strong growth is likely to lead to rising inflationary pressures," adding: "Against this background, the committee-judged that an increase was necessary to keep inflation on track."

Lenders are expected to pass on all or part of the increase to borrowers.

But savers will benefit through higher interest payments.

Today's move reflects concerns that low borrowing rates have generated an overheated housing market and a looming debt crisis.

House price inflation is running at

21.5 per cent, according to latest figures from Halifax, Britain's biggest mortgage lender.

Meanwhile, our appetite for borrowing shows no sign of waning and consumer groups are worried that millions may be saddling themselves with debts they cannot afford. Britain's household debt is more than £1 trillion, equivalent to annual economic output.

Shadow chancellor Oliver Letwin blamed the rate rise on the Government's inflation-busting increases in public spending. "For people with floating rate mortgages, this means that their interest payments will have risen by more than a third in the last nine months," he said. Mr Letwin added: "This is how people are paying today for Gordon Brown's fat government, big spending and big borrowing as the Bank of England tries to cool down the economy he is overheating.

"It is a kind of advanced payment on the further tax rises that will take place if Labour wins a third term."

Economists fear that inflation could take off if economic growth does not slow.

CBI chief economic adviser Ian McCafferty said: "The continuation of the committee's steady approach provides the economic stability that firms need and is the best way to ensure that interest rates peak at the lowest possible level."