Major lenders push up their mortgage rates

THREE big mortgage lenders hiked their rates today, signalling an end to the recent trend of falls in the cost of home loans.

HSBC, the Woolwich and 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.

Other lenders, including HBOS, are expected to follow.

Rates had been steadily falling since July, helping to push the average cost of a two-year, fixed-rate deal down to its pre-credit crunch level, as lenders 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 risen from 5.18 per cent last week to 5.56 per cent yesterday.

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 last September.

Last week, the specialist lender GE Money, which lends under the First National and iGroup brands, announced rises of up to 1.6 points, while smaller players, such as Yorkshire Building Society, have also increased the cost of some deals.

Now that some of the major players have increased their rates, other lenders are expected to follow suit in the coming days.

HSBC is increasing its fixed-rate deals for borrowers with only a 10 per cent deposit by 0.3 points,

while the Woolwich, which is owned by Barclays, is increasing its fixed-rate mortgage deals by up to 0.35 points and tracker ones by 0.05 points.

The internet and telephone bank First Direct is increasing its two-year, fixed-rate loans by up to 0.3 points.

Rising mortgage rates are likely to increase pressure on the already struggling housing market. There are also fears they will be accompanied by fresh tightening in lending criteria, making it harder for first-time buyers to get a mortgage.