Mortgage costs continue to rise
Updated on 10 June 2008
Mortgage rates for new borrowers continued to rise during May despite interest rates being kept on hold, new figures showed.
The average cost of certain fixed rate deals jumped to a new eight year high during the month as lenders continued the trend to raise their rates to reflect the problems in the market caused by the credit crunch.
The average cost of a two-year fixed rate mortgage for someone with a 25% deposit rose by 0.21% during May to 6.27%, its highest level since September 2000, when interest rates were at 6%.
The change was even steeper for people taking out a five-year fixed rate loan with the same size deposit, with the cost of these deals rising to 6.11% compared with 5.85% in April.
The increase in fixed mortgage rates is being driven by a steep jump in swap rates in recent weeks, which have risen after figures on inflation led economists to believe official interest rates would not fall as far or as quickly as had been previously thought.
But fixed rate deals are not the only ones that are increasing, with the Bank of England figures also showing that the average cost of a tracker mortgage with a loan to value ratio (LTV) of 75% rose by 0.2% during May to average 6.19%, down only slightly from 6.24% in January, despite base rates being cut twice since then.
The Bank of England data also failed to give a figure for the average rate of a two-year fixed rate mortgage for someone with a 5% deposit for the first time since 1995 due to having insufficient data on the loans.
There are now just 18 different two-year fixed rate mortgages for people with a deposit of this size available across the market, compared with 235 in July last year.
A combination of falling house prices and tighter lending practices have led to lenders demanding increasingly high deposits from borrowers since the beginning of the year.
Across the whole mortgage market there are now just 168 residential loans available on an LTV of 95% out of a total of 3,167 different mortgages, compared with nearly 1,000 a year ago.
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