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Lenders to Lift Mortgage Rates

After warnings of no more cuts in Bank rate until 2010 brokers think now is the time to lock in.

By Elisabeth Colemn

Borrowers coming up to remortgage have been urged to snap up a good deal while they still can, amid warnings that the cost of home loans is set to soar again.

Some of Britain’s biggest lenders including Abbey and Nationwide, trimmed rates last week. However, that was before the Bank of England said on Thursday that inflation could jump to 3.7% by the end of the year, and indicated that it would be more cautious in cutting interest rates.

The inflation report sent rates in the wholesale markets soaring, suggesting rates on offer to homeowners would also head up, at least in the short term.

Nationwide, the biggest building society, was the first to move last week, lowering its five-year fix by 0.30 percentage points to 5.95% and bringing the monthly cost of a ₤200,000 home loan down by ₤Ј37 to ₤1,282.

The society made the announcement last Tuesday, before the Bank released its prediction following a worrying rise in prices.

Nationwide also cut its headline two-year fix, albeit by just 0.15 points to 6.15%, with repayments on a ₤200,000 loan now ₤1,307.

Abbey, which has trebled its market share during the credit crunch, followed suit by cutting its trackers by 0.05 points and its five-year fix by 0.17 points to 5.75%. Only “good” borrowers with a 25% deposit or equity in their home will benefit from this rate, though.

Ray Boulger of Charcol, a broker, said: “All lenders, including Nationwide, Abbey and RBS, had access to cheap funds a fortnight ago after wholesale borrowing costs began to ease. We saw cheaper deals last week as a result. But we’ve seen unprecedented demand for these deals and it’s unlikely that they will last until the end of the week.”

Swap rates - which lenders use to fund their fixed-rate deals - leapt to 5.75% last week; they were 5.24% a week earlier.

Boulger said: “Fixed-rate mortgages were tipped to fall as long as there were expectations that the Bank would cut interest rates. There is much less reason to expect this now. The new rates are out of step with the market. They won’t last long.”

Darren Cook, of Moneyfacts, the financial-data firm, also said he expected rates to rise. “Over the past five days we have seen a swap-rates increase by over a third of a percent. It will only be a short while before we see these rate increases filter through to the high street” he said. We look at the future for rates and the best mortgage deals.

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