Nationwide & Halifax increase rates

Two of the UK's biggest mortgage lenders have increased interest rates on some of their leading products, adding further gloom to an already troubled property market.

In a move designed to exclude all but the most creditworthy customers, Nationwide increased rates on its tracker products by between 0.51 and 0.57 per cent – pushing costs of some mortgages above seven per cent.

Following suit if.com, part of the Halifax bank, increased rates on its products by up to 0.5 per cent.

The changes are likely to make it more difficult still for homebuyers to take their first steps onto, or move up, the housing ladder.

Figures from the British Bankers Association (BBA) show approvals for house purchase are already near record lows – a clear sign the market is slowing.

The number of loans for house purchases issued in February edged up to 43,870, up from 43,732 in the previous month – however, levels were still down a third on a year ago.

Gross mortgage lending also fell slightly, down to £17.9bn in February.

The vast majority of this, however, was accounted for by remortgages.

In further bad news for borrowers, internet lender First Direct – a division of HSBC – announced it was withdrawing its 4.75 per cent two-year tracker deal at midnight last night.

The deal will be replaced with a 4.95 per cent mortgage offering.

Commenting on the changes Howard Archer, the chief UK economist at Global Insight, said yesterday's news showed that there was still a high risk of a full-scale housing crash in the UK.

"Housing demand will be hit by fewer and more expensive mortgages being available," said Mr Archer.

"Furthermore, there is a growing danger the UK economy will suffer recession, or extended weak growth, and that unemployment will increase significantly.

"This would be liable to lead to a marked increase in the number of people having to sell houses for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house."

The Nationwide sentiments were supported by the Royal Institution of Chartered Surveyors (Rics).

"The fifth consecutive monthly drop in house prices is indicative of the shift in sentiment towards the property market," said Simon Rubinsohn, Rics chief economist.

"Lenders are continuing to respond to the worsening conditions in the money markets by raising the cost of mortgage loans and tightening up on lending criteria."

The situation is increasingly difficult for some vulnerable groups.

"This is making even harder for first-time buyers to take their first step on to the property market," continued Mr Rubinsohn.

"There is little reason to believe underlying problems facing mortgage lenders will ease anytime soon. As a result house prices are likely to continue to drift lower in the coming months."