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Interest rates increased to 5.25 per cent

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.”

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