Lender hikes mortgage rates

Alliance & Leicester has become the latest lender to charge higher rates to mortgage customers with smaller deposits.

The group is following in the footsteps of major lenders such as Halifax and Nationwide by introducing different rate tiers for people according to the proportion of their property's value they want to borrow.

It has also repriced its mortgage range, typically raising rates by between 0.2% and 0.9%.

The change, which comes into force from Saturday, means that someone with a 25% deposit will now pay 5.99% for a two-year fixed rate mortgage on which they pay a 2% set up fee, while someone with just a 10% deposit will pay 0.5% more at 6.49%.

The move is further bad news for hard-pressed first-time buyers who are having to find increasingly large deposits.

The A&L changes mean that someone with a £150,000 mortgage will pay around £560 a year more than someone with a 25% deposit.

The change is even starker for people hoping to take out a three-year fixed rate mortgage with a £599 fee, with the cost of one of these loans jumping by 0.9% to 6.99% for borrowers needing a loan-to-value (LTV) ratio of 90%.

Mortgage lenders are continuing to tighten their lending criteria, with Barclays lending arm the Woolwich withdrawing its final 95% LTV products.

There are now just 201 different mortgage deals on the market that will lend to people with only a 5% deposit, compared with 241 at the beginning of last week and 963 in July before the credit crunch hit.

But despite the latest changes, there appears to have been a pause in the pace at which lenders are raising their mortgage rates, while Royal Bank of Scotland Group and Abbey have recently cut the cost of some of their deals.

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