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Last Updated: Tuesday, 23 January 2007, 14:54 GMT
Big lenders raise mortgage rates
The Bank of England
The Bank of England rate rise took the banking industry by surprise
Most big mortgage providers have now raised their lending rates after the Bank of England's recent rate rise.

The past couple of days have seen rises from the Abbey, Royal Bank of Scotland, Alliance & Leicester and the Woolwich, which is owned by Barclays.

Increases have mainly been by a quarter of a percentage point, though Alliance & Leicester and Royal Bank of Scotland have increased their rates by more.

The Bank of England raised its main interest rate to 5.25% two weeks ago.

Although the standard variable rates (SVRs) quoted by lenders are a traditional benchmark for comparing the cost of mortgages between one lender and another, few borrowers actually pay them.

In fact, since April 2005 most new borrowers have been taking out fixed-rate mortgages to protect themselves against higher borrowing costs and variable rates.

The Alliance & Leicester pointed out that currently only 11% of its total stock of borrowers are paying its SVR.

The rest are either on a fixed-rate deal or on a tracker rate, which although variable is at a cheaper level than the SVR.

Decisions

A majority of home-loan lenders have still to take a decision over raising their main mortgage rates, but these are overwhelmingly small building societies.

Bernard Clarke of the Council of Mortgage Lenders (CML) pointed out that there was nothing unusual about some financial institutions moving more slowly than others.

He said that there were a variety of factors that might be holding them back.

"Their perception of where interest rates are going is one, where they want to position themselves commercially, and the business costs of managing the whole process," he said.

"Some may just not have taken a decision yet," he added.

Among the big lenders which have still to make a decision about their mortgage and lending rates is the Co-op bank.

Out of the UK's 128 banks, so far 43 - about 35% - have raised their savings rates in response to the Bank of England. The increases have usually been a quarter of a percentage point but a few have announced larger increases.




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