The Bank of England has increased interest rates to 5.25 per cent.
The surprise quarter point rise comes after the November increase from 4.75 per cent.
Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi says: “A rate rise to 5.25 per cent at the start of the year has caught the market by surprise, particularly following a period of heavy consumer spending during the festive season. This rise comes a month or two earlier than widely expected as many were anticipating a rise in the first quarter of 2007, but not as early as this.
An increase in rates will signal a tightening of belts for some. Money markets are expecting a further rise in the first half of 2007 and this will impact on the pricing of fixed and base rate tracker mortgages. For those on the look out for a new fixed rate deal, it would be advisable to secure one now rather than adopt a ‘wait and see’ approach. There are also still a number of great value base rate trackers available which are cheaper than short-term fixed rates for those whose financial circumstances are more flexible and able to withstand further rises.”