Mortgage misery as rates rise to 5.75%

Homeowners have been hit with a quarter point interest rate hike to 5.75 per cent, the highest seen since March 2001.

Bank of England policymakers have now made the fifth increase in less than a year as the BoE is keen to bring inflation back down to its 2 per cent target.

Strong property price figures released by mortgage giant Halifax on Wednesday added to the pressure on the Bank.

The rise means borrowers are paying on average an extra £16 a month in repayments on a typical £100,000 home loan. Homeowners with such a mortgage have already seen average monthly payments rise by £64 since last August.

According to the mortgage lender, house prices continued to soar in June, keeping the annual rate of property inflation above 10 per cent.

However, there were signs that the underlying trend is beginning to slow, as the 0.4 per cent increase during the month marked the second month in a row that prices had risen by less than 0.5 per cent.

In Wales, meanwhile, prices dropped by 2.8 per cent last month.

In its last key quarterly inflation report, the Bank warned it may need to raise rates to 5.75 per cent this year to bring the Consumer Prices Index (CPI) down over the next two years.

CPI - the official measure of inflation - caused concern when it hit 3.1 per cent in March, its highest level since the Bank took charge of setting interest rates ten years ago.

Although inflation eased back to 2.5 per cent in May, Bank Governor Mervyn King said only two weeks ago that "further action" on interest rates could be necessary if companies' pricing intentions remained strong and inflation expectations stayed high.

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