Bank woes force mortgages to rise again
Article source: James Charles, Rebecca O’Connor and Gary Duncan - www.timesonline.co.uk
The cost of home loans is set to rise again, with banks and building societies blaming the global financial crisis.
Abbey, the second biggest mortgage lender, will withdraw some of its most competitive home loan deals from tonight and Yorkshire Building Society raised its rates by up to 0.4 of a percentage point yesterday, adding £50 a month to a £150,000 mortgage.
Lloyds TSB, Northern Rock, and Woolwich are expected to raise the cost of borrowing in the next few days. The moves come after drastic jumps in “swap rates” in money markets. These dictate the cost to banks and building societies of the funds used for home loans.
The cost of fixed-rate mortgages had begun to fall until the collapse ten days ago of Lehman Brothers and the subsequent convulsions in world financial markets. Since then, the swap rates have leapt, lifting lenders’ costs.
A typical household coming to the end of a fixed-rate deal faces a jump in repayments of about 20 per cent. The best rate on a two-year fix for a £150,000 mortgage in 2006 was 4.59 per cent. The best such deal available today is 5.49 per cent, adding an extra £112 a month to repayments.
Mortgage experts said that the sudden rush by lenders to withdraw loan deals and raise rates was a sign of further pain to come. Darren Cook, of Moneyfacts.co.uk, a price comparison website, said: “It is like they have just suddenly turned the tap off again.”Yorkshire Building Society said it had no choice but to raise rates by up to 0.4 of a percentage point, after being swamped by applications in the past two weeks. It blamed the soaring cost of interbank borrowing.
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