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Rate rise delivers double-whammy

Although the quarter point rise in the interest rate will affect those with variable-rate mortgages, an expert from Lloyds TSB warned that it would have a knock-on effect on the economy.Chief economist for Lloyds TSB, Trevor Williams, said that the hike in the rate of borrowing would effectively "take income out of [the] hands" of those with variable mortgages.He predicted that new levels of debt within the housing market would also "slow down the economy", with borrowers having less cash to splash on other purchases. Mr Williams conceded: "For those mortgage holders who are linked to a fixed rate then of course this means nothing until they have to re-fix."But for those people with variable mortgage rates it means that immediate impact will come through as a result of the quarter point increase," he added.Although people appear to have ignored the past three interest rate rises, Mr Williams was of the opinion that those with large levels of debt would feel a fourth rate rise."It will add to the pressure on those who are on stretched incomes, ie. they have big repayments and this won't help to make it easy for them to meet them; it will make it harder," he concluded. "It'll add a quarter of a point. If you think about what it adds, then effectively it's adding something like five per cent of their interest payments."

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