Halifax raises interest rates 0.5%

Halifax has increased interest rates on its popular two-year fixed and tracker mortgages, as credit conditions continue to deteriorate in the UK market.

The news comes just a week after Halifax reconfigured its lending criteria, allowing those with a 25 per cent deposit to pay less in interest than those without.

The change comes despite pleas from chancellor Alistair Darling earlier this week, encouraging lenders to follow the lead set by the Bank of England, with commercial considerations taking precedence.

Halifax was one of the industry stakeholders to meet prime minister Gordon Brown yesterday morning to discuss the growing crisis in the housing market.

The lender, which presently controls around 20 per cent of the market, has increased the interest rate on its two-year fixed and two-year tracker mortgage products by 0.5 per cent for those borrowing through a broker.

For those dealing directly with the company, the increase will be 0.35 per cent.

"The pricing for the two-year fixed and tracker mortgages has increased significantly in recent weeks across the industry because of the cost of funding in the money markets," said a company spokesperson.

"The difference between base rates and Libor is 0.9 per cent, the highest gap for many months."

Halifax has left the cost of three, five and ten-year deals unchanged.

The news follows this month's Bank of England interest rates cut of 0.25 per cent, which saw the base rate fall to five per cent last week.

This follows two similar cuts by the monetary policy committee (MPC) in December and February which have seen the rate fall from 5.75 per cent.

While a number of lenders have cut their rates in response to the Bank's decision, Nationwide, Alliance & Leicester and Britannia have all increase their rates in response.

Halifax did follow suit, cutting its standard variable rate by 0.25 per cent, but only a fraction of borrowers have deals at this rate.

The newly-nationalised Northern Rock also embarrassed the government by increasing rates in response to the announcement.

The troubled lender has been deliberately pricing itself from the market in an attempt to shrink its operations.

It is thought Halifax, presently the country's largest mortgage lender, has now decided to follow a similar route.

However, despite the present turmoil, HSBC is presently offering to meet all expiring fixed-rate deals at their present rates for two years, though the attached fees and required deposits make this product unsuitable for some.