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Last Updated: Thursday, 19 April 2007, 09:20 GMT 10:20 UK
Lenders pull fixed-rate mortgages
A street of semi-detached houses
The cost of mortgage loans are set to rise
Lenders have started to withdraw their fixed-rate mortgage products in preparation for a possible Bank of England (BoE) interest rate rise.

Alliance & Leicester pulled its fixed-rate deals on Wednesday, and the BBC has been told that two other major mortgage lenders will now follow suit.

Lenders often withdraw mortgages when interest rates rise.

They base their borrowing costs on money market rates, which in turn are linked to the BoE's rate.

Price growth

On Wednesday, the UK inflation rate rose to 3.1%, which was higher than expected.

Many analysts now believe that a rise in UK interest rates in May is inevitable, with that feeding through into the money market rates, also pushing them higher.

This will result in higher costs for lenders and they will pass these on to consumers.

"Many lenders are currently offering rates below the money market rate and this cannot go on forever," said Roy Hardy, a mortgage broker at Cobalt Capital.

He added that swap rates, the rate at which money is bought and sold on the market, "have been pushed up because of speculation over BoE rates and this means it is more expensive for mortgage lenders to buy money on the market".

Alliance & Leicester said that it will announce its new fixed-rate mortgages next week.


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