Articles | Major lenders hike mortgage rates

Major lenders hike mortgage rates

Published: Friday, 26 September 2008, 8:53AM

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 per cent last week to 5.56 per cent 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 per cent to nearly 6.28 per cent - 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 per cent, 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 per cent deposit by 0.3 per cent.

It is also introducing a new loan to value tier of 75 per cent on its fixed rate range, and it is cutting rates on these deals by 0.2 per cent.

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.

But it added that it was reducing arrangement fees for people borrowing 90 per cent of their home's value from £799 to £499, while fees for people taking out a 75 per cent loan to value ratio would be £999.

The Woolwich is increasing its fixed rate mortgage deals by up to 0.35 per cent, while tracker ones are rising by 0.05 per cent.

The move leaves a three-year fixed rate loan for a borrower with a 40 per cent deposit who pays a £995 arrangement fee at 5.89 per cent, while someone with just a 10 per cent deposit will have to pay 6.99 per cent.

First direct is increasing its two-year fixed rate loans by up to 0.3 per cent from 3pm.

The change will increase its current market leading deal of 4.99 per cent, which comes with fees of £1,998, to 5.19 per cent.

A renewed round of rising mortgage rates is likely to increase pressure on the already struggling housing market.

There are also fears that the increases will be accompanied by a further tightening in lenders' lending criteria, making it harder for first-time buyers to get onto the property ladder.