Mortgage rates may rise again
Updated on 18 September 2008
Mortgage rates could begin rising again following another significant jump in the cost of wholesale funding.
The global financial turmoil has caused one of the key inter-bank lending rates, three month Libor, to increase to 5.98%, up from 5.7% at the end of last week.
The rise will not only affect the rates of tracker mortgages, but it also indicates a renewed reluctance among banks to lend to each other, suggesting the recent improvement in the mortgage market will be short-lived.
Ray Boulger, senior technical manager at John Charcol, said: "It is likely that we will see some of the keener trackers being repriced."
He added that as interest rates fell over the coming year, the spread lenders had between the cost of their funds and the rates they charged consumers was likely to widen.
He said: "With the reduction in profits, lenders need to rebuild their balance sheets, and the only way they can do that in the current market is to widen their margins."
The recent trend among lenders to cut their fixed rate deals is also likely to come to an end, despite a recent fall in swap rates, upon which the deals are based.
Eamonn Rice, chief executive of mform.co.uk, said he expected lenders to begin raising their rates again in response to the "wild swings" on the money markets.
He said rates on best buy mortgages had fallen by an average of nearly 0.5% during the past six weeks, but this trend is now likely to be over.
Mr Rice said: "Just when it looked like there was light at the end of the tunnel for the mortgage market we are now heading back to a period of rising rates."
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