Rates for personal loans, mortgages and savings are now moving independently of the base rate set by the Bank of England, which was this week held at 5.75 per cent.

In spite of there being no movement in the base rate, rates for loans, mortgages and savings are continuing to fluctuate: while interest payments for loans and variable mortgages are on the rise, savings rates and fixed-rate mortgages are falling.

Over the past nine months, there has been a gradual increase in the rates on unsecured personal loans. Nine providers have now hiked interest rates on tiered loans with one, Bradford & Bingley, increasing rates by 4 per cent.

This is due, says Lisa Taylor, analyst at Moneyfacts.co.uk, to a year of interest rate rises, rising levels of bad debt and increasing uncertainty in the financial markets.

Some mortgage rates are also on the rise. Abbey’s variable tracker has increased 0.1 per cent while its fixed deals for five and 10 years have dropped by 0.15 per cent. At Nationwide, discounted deals have increased by up to 0.2 per cent for two-year deals while two, three, five and 10-year fixed deals have been cut by up to 0.2 per cent.

“If banks think base rates are coming down they are likely to raise tracker deals to increase their margins,” said Julia Harris, mortgage expert at Moneyfacts.co.uk.

So the 250,000 homeowners coming off fixed-rate deals in the next three months will face a hike of at least £100 a month for a new fixed-rate product, according to Newtomorrow.com, the debt solutions firm.

The average interest rate repayment on a fixed-rate mortgage in October 2005 was 4.96 per cent but borrowers can now expect to pay around 5.79 per cent.

There is also a big difference between the mainstream mortgage market and specialist lenders according to said Harris.

“Variable and fixed rates in mainstream lenders are moving slowly but specialist lending criteria is changing twice a week. Since the credit crunch, we have seen rates increase by over 1 per cent in the specialist sub prime range,” she said.

Meanwhile, savers are seeing a reduction in rates. In mid-September, fixed-rate savings returns were at their highest in six years, breaking the 7 per cent barrier. But this situation lasted only a few days and since the peak the average one-year fixed-rate bond is now paying out 6.135 per cent.

The reason for these anomalies, says Ray Boulger of John Charcol, is that Libor rates have remained above the Bank base rate. Although they have edged down 0.62 per cent from their peak on 13 September, at 6.26 per cent Libor rates are still way ahead of the base rate.

“If the markets expect the base rate to go up then you would expect the three-month Libor rate to be a quarter point above the base rate. But if the base rate is expected to fall, then you would expect the Libor rate to be a little less.”

There is still speculation over where base rates are headed. Industry commentators predict that the interest rate cycle has peaked and the next move will be down, but not until next year. The Council for Mortgage Lenders said borrowers should continue to plan for rates at or around current levels

Henk Potts, equity strategist at Barclays Stockbrokers, believes the Bank’s rates will stay on hold until the end of the year with some cuts likely towards the end of the first half of 2008.

The first signs of the housing market cooling may have appeared but the Royal Institution of Chartered Surveyors believes the Bank will want more concrete evidence that the housing market is softening before taking any action.

This entry was posted on Tuesday, January 8th, 2008 at 10:23 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.