Fixed rate mortgages rates increase quickly

Saturday, 20 June 2009 05:49

Fixed-rate mortgage rates are rising with 14 lenders increasing rates in the last week alone.

While the Bank of England is predicted to hold interest rates at 0.5 per cent for the coming months, swap rates - which are used by lenders to set fixed rate mortgages - are increasing.

Since the beginning of the week the average two-year fixed rate mortgage is up 0.16 per cent to 4.90 per cent.

The average five-year fixed rate mortgage, according to data from Moneyfacts.co.uk, has risen 0.21 per cent to 5.82 per cent.

Lenders to increase their rates for new fixed-rate mortgages include Britannia, Abbey, Alliance & Leicester, First Direct, Lloyds TSB, nationwide, Barclays through its Woolwich brand, and the Co-operative Bank.

Meanwhile, lenders have also been taking deals off the market - with the number of fixed rate deals falling from 937 to 887 under the assumption new deals will be introduced at higher rates.

Michelle Slade, analyst at Moneyfacts, said: "After a period of relative calm in the mortgage market, lenders are stumbling over each other to increase fixed rate mortgages.

"The last time we saw such frantic activity was at the end of June '08, when the average two year fixed reached a staggering 7.08 per cent."

At that time, lenders were in some cases increasing their mortgage rates twice or three times during a single week, Mr Slade explained.

She added the current increases could well continue.

"The recent increase can be attributed to the hike in swap rates that we saw a few weeks ago," she said.

"Just like last time, lenders are quick to pass any increase in the cost of wholesale funding on, but are never quite as quick to reduce rates when the cost of funding declines."

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