MOST homeowners were surprised after the Bank of England raised interest rates a quarter-point to 4.75 per cent.

News of the first change in rates for a year shocked the stock market with the FTSE 100 index falling more than 60 points in the few minutes after the announcement and slumping as much as 105 points to 5,827 in afternoon trade.

However, the pound rallied, hitting two-month highs against the dollar and the euro.

Lenders are expected to change their Standard Variable Rates (SVRs) if they have not done so already.

Borrowers on tracker rate deals will automatically see their mortgages increase by 0.25 per cent. This means homeowners with a repayment mortgage of £100,000 will pay an additional £20.83 a month or £250 a year.

Borrowers on fixed-rate deals will see no change in their monthly repayments.

So should we all change our mortgages?

Borrowers should only re-mortgage if they are on an uncompetitive rate. If you are paying the standard variable rate, you should consider reviewing your borrowing and see an independent financial adviser to see if you can obtain a more competitive rate.

If you want the security of knowing how much you will pay each month, you may consider a fixed rate. Most fixed-rate deals on the market have already factored in the latest rate rise.

If you are happy to accept a little more risk then you might be better off with a discount or tracker rate. Despite the immediate impact of increased monthly payments on tracker rates, they are still very competitive.

You may understandably be concerned about further increases in interest rates. If inflation continues to rise the Bank of England may have little choice but to make further increases.

It is probable that the interest rate rise will dampen the demand for mortgages, resulting in some of the momentum going out of the housing market.

However, interest rates will need to increase at least another two or three times before we see any effect on house prices.

* Michael Prosser works for Simply Finance Limited, with offices in Canterbury and Sandwich. Call Michael on 01227 764888.