Tuition Fee Hike May Force Up Mortgage Rates

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THE decision to hit families with higher university tuition fees could force the Bank of England to raise interest rates, it emerged yesterday.

Bank governor Mervyn King warned that next month's 150 per cent increase in top-up fees will push up inflation substantially this year, at a time of record energy price rises.

In its quarterly economic outlook, the Bank signalled that it may respond with at least one more increase in its lending rate.

A quarter-point rise would put borrowing costs at 5 per cent - their highest level since 2001 - hitting Britain's 18million homeowners. Last week, the Bank surprised borrowers with an increase to 4.75 per cent.

Experts warned that the combination of higher interest rates, soaring utility bills and repeated tax rises could push more households into financial ruin.

A further quarter-point increase in borrowing costs would add [pounds sterling]25 to monthly payments on an average [pounds sterling]100,000 variable-rate mortgage.

Howard Archer, an economist at forecaster Global Insight, said: 'Given the scale of household debt, even a limited increase in interest rates could affect more people than in the past.

'It would put more strain on the consumer, coming on top of soaring utility prices, high petrol prices, fairly modest earnings growth and pension concerns.

'It is not a good time for tuition fees to be rising, because it's one more thing pushing up the headline rate of inflation.' Liberal Democrat Treasury spokesman Vince Cable said: 'Interest rates are more likely to go up than go down.

'For those people who have borrowed to the hilt to get a foothold on the housing ladder this is very bad news, because we are already seeing rapidly rising repossessions.

'The cost of living for young people is rising rapidly, both because the cost of housing is spiralling out of control and because of the cost of tuition, which was once free and is now seriously expensive. …