In light of the recent interest rate increase by the Bank of England, many of the UK’s leading mortgage lenders have announced plans to increase their standard mortgage rates over the coming weeks. The Halifax and Nationwide will both be increasing their rates from 1st February, with the Halifax standard rate rising to 7.25 per cent and the Nationwide rate to 6.74 per cent. While this is bad news for mortgage holders, and future house buyers, the two majors have also announced plans to increase their standard deposit account interest rates by 0.25 per cent.

Now that the two majors in the industry have broken ranks, it is only a matter of time before the others follow, although this particular interest rate rise is provoking differ reactions across the board. Many of the other mortgage lenders have indicated differing future rates, and while we await confirmation in due course, it appears that some of the mortgage institutions are looking to take advantage of the recent change to increase their profit margins.

We should shortly see the results of the cumulative effect of interest rate rises over the last 6 months, although few are expecting a major short term fall in mortgage applications. This impression is in line with the much publicised Bank of England policy, with further interest rate rises most definately on the agenda. How far will interest rates rise in the short term?

The recent increase in the rate of inflation, together with the strong housing market, are proving something of a headache for the Bank of England with consumer exuberance continuing unabated. While many in the market see no immediate dangers to the economy, it will take some expert fiscal management to ensure that the economy slows down at a controlled pace. The room for error is particularly small, and there is serious danger of a knock on effect on the employment market, should the economy slow too quickly. This would be disastrous, with mortgage arrears rising and financial hardship for many.

While many of the mortgage companies have managed to attract massive customer business on the back of special short term offers, these are now very few and far between. As the impact of “full” mortgage rates begins to kick in for many, we are sure to see signs of slowdown in the housing market - but will it be a controlled slow down? That remains to be seen...