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Mortgage Borrowing Soars as Rate Rise Looms Figures released from the British Bankers' Association showed that gross mortgage lending hit a new high of £16,917 million in September. The combination of continued buy-to-let investment and equity withdrawal has helped keep both house prices and consumer spending at record levels. With consumers unwilling to reign in their credit-financed shopping frenzy, it could be only days before the Bank of England increases interest rates for the first time in nearly 4 years and signals that it is time to pay for the credit party. The Bank of England's Monetary Policy Committee (MPC) meet next Wednesday and Thursday to decide whether they should increase the base rate or keep it on hold. Minutes from October’s meeting showed that 4 of the 9 members voted for a rate increase, revealing that rates were held at 3.5% only by the slimmest possible margin. Now one month later, with strong sales data and growth predictions looking like they may be met, the possibility of a rate hike looks even more certain. Though whether the MPC want to be seen as the guys who cancelled Christmas is another matter. The money markets, however, have been pricing in a higher base rate for weeks, so much so that many mortgage lenders have been pulling their existing fixed rate mortgage products. On Monday Nationwide joined a growing list of lenders as it too increased the rates on a range of its fixed mortgages. Tuesday saw Bank of Ireland Mortgages withdraw its fixed rate mortgage products. Whilst commentators debate whether the base rate will hit 5% or 5.5% by 2005, homeowners are stampeding to refinance with a fixed rate mortgage. A practice that is now a more expensive proposition. But fixed rate mortgages typically come with higher application fees and initial interest rates, which can still make them more expensive than a variable or discount mortgage exposed to a gradually increasing base rate. So any decision of which mortgage to choose should be based on how pessimistic you are about interest rates over the next 24 months and not to grab the first fixed rate deal you find.   Related Links: British Bankers' Association Bank of England     Published Wednesday October 29th 2003

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