Rates blow to homeowners

The Bank of England today raised interest rates for the first time in nearly four years.

The move, which will mean dearer mortgages for millions of variable rate borrowers, increased the base rate from 3.5 to 3.75 per cent.

It is the first increase in the cost of borrowing since February 2000 and follows a series of rate reductions aimed at jump-starting the flagging economy. More increases are expected in coming months.

Today's rise by a quarter of one per cent had been tipped by most City analysts because of the resurgent housing market, record levels of consumer debt and mounting signs the economy is picking up speed.

Variable rate mortgage customers have been enjoying the lowest rates for 50 years, but lenders are expected to pass on all or part of the increase to borrowers.

If passed on in full, homeowners with a £50,000 repayment mortgage will typically see their monthly bill rise by around £7.50 to £315.

A £100,000 borrower will pay approximately £630, £15 more, while the repayments of a £250,000 borrower will increase by about £37.50 to £1,570.

Savers are expected to gain because

of higher interest payments. In a statement, the Bank said: "The global economic recovery appears to be gathering momentum, though the pattern is uneven.

"After slowing at the start of the

year, growth in the UK has picked up and credit growth remains strong.

"Business surveys suggest the recovery is becoming more broadbased. Neither household spending nor the housing market have slowed by as much as the committee expected." Today's move by the Bank's monetary policy committee follows a key survey of the massive service sector, which accounts for about 70 per cent of the total economy, which revealed the fastest pace of growth for four years.

But CBI director general Digby Jones warned: "Despite more encouraging-world growth, we should be clear the economic recovery is still at an early and extremely fragile stage."