Interest rate reprieve may prove short-lived

The freezing of interest rates earlier this month is only a temporary reprieve.

09:52 28 April 2004

Financial experts have warned that the freezing of interest rates earlier this month is only a temporary reprieve, and that an increase is likely next month, the Daily Telegraph newspaper reports.

Many predict that base rates in the UK could reach 5.5 per cent or six per cent in the next couple of years. The Bank of England opted to freeze interest rates at four per cent at the beginning of April.

Abbey, one of the UK's largest mortgage lenders, last week increased mortgage rates on its one, three and five-year fixed-rate mortgages "to reflect the higher costs of borrowing on the money markets", suggesting that economists who set the rates at which banks borrow from each other believe interest rates are set to rise.

David Hollingworth, of mortgage brokers London & Country Mortgages, said: "Lots of people are withdrawing their fixed-rate deals at the moment. We are also seeing arrangement fees starting to creep up in order for lenders to balance the books and keep rates attractive.

"There are still some great rates left, but we have nearly seen the last of the real bargains."

Fixed-rate mortgages are one of the most effective forms of protection against interest rate rises, as your monthly payments are fixed for a set period of time, usually two or three years.