Lenders hike mortgage rates
Updated on 26 September 2008
Three major mortgage lenders have hiked their rates, signalling an end to the recent trend of falls in the cost of home loans.
HSBC, Barclays' lending arm the Woolwich and internet and telephone bank first direct all said they were passing on recent increases in the cost of borrowing to customers.
The move brings to an end the most prolonged period of falling mortgage rates since the credit crunch first struck.
Rates had been steadily falling since July, helping push the average cost of a two-year fixed-rate mortgage down to its pre-credit crunch level, as lenders once again competed for business. But wholesale funding costs have soared during the past week following the recent financial turmoil.
Two-year swap rates, upon which fixed rate deals are based, have increased from 5.18% last week to 5.56% on Thursday.
At the same time the three-month Libor rate, which affects the pricing of tracker mortgages, has soared from a recent low of 5.7% to nearly 6.28% - the highest level since December last year, and the biggest differential to the Bank of England base rate since September.
Last week specialist lender GE Money, which lends under the First National and iGroup brands, announced rises of up to 1.6%, while smaller players, such as Yorkshire Building Society, have also increased the cost of some of their deals.
Now that some of the major players have also increased their rates, other lenders are expected to follow suit in the coming days.
HSBC is increasing its fixed-rate deals for borrowers with just a 10% deposit by 0.3%. It is also introducing a new loan to value tier of 75% on its fixed rate range, and it is cutting rates on these deals by 0.2%.
The group justified its decision saying that mortgages for lower risk borrowers with larger deposits were cheaper to fund than those for people who did not have as much money to put down.
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