Cost of getting a mortgage goes up for new borrowers

Apr 30 2008 by Our Correspondent, Western Mail

THE cost of mortgages for new borrowers has continued to increase with two of the UK’s biggest lenders raising their rates.

Halifax and Cheltenham & Gloucester have both announced they are increasing their rates by up to 0.6% for people who take out a mortgage through an intermediary.

The latest change comes after Halifax last increased its broker rates, raising its short-term deals by up to 0.5%.

Halifax said it was increasing its tracker rates and fixed rate deals taken out through intermediaries by up to 0.6%, although it is reducing its 10-year tracker rate by 0.1% to 6.64%.

The move means the group’s three-year tracker for a borrower with at least a 25% deposit will jump from 5.62% to 6.22%, costing an extra £670 a year for someone with a £150,000 mortgage.

A Halifax spokeswoman said: “We price in line with the market. Over the past few weeks, most major lenders have increased their pricing on a number of occasions.

“Wholesale money continues to be significantly more expensive than it was a year ago.

“Unfortunately, this increased cost needs to be passed on to new customers by banks and building societies. Existing customers are unaffected.”

Cheltenham & Gloucester, the mortgage arm of Lloyds TSB, has also increased the cost of its fixed rate deals taken out through intermediaries by up to 0.6%.

The move pushes up the cost of its two-year fixed rate mortgage for someone with a 10% deposit to 6.59%. The lender has also increased its lifetime tracker mortgage by 0.4%, to give a rate of 6.63% for a borrower with a 20% deposit who is paying a £995 fee.

It is thought to be the 15th time this year that C&G has changed some aspect of its mortgage range.

At the same time Britannia Building Society said it was increasing all of its fixed-rate mortgages by up to 0.75%, while it has temporarily withdrawn its tracker deals.

The group’s two-year fixed rate mortgage now has a rate of 7.59% for someone with less than a 25% deposit, considerably higher than its current standard variable rate of 6.8%.

The mortgage market is continuing to change at a rapid pace as lenders raise their rates in a bid to avoid attracting too much business.

The Bank of England has offered help to banks with a £50bn scheme to help tackle the problems caused by the credit crunch.

Under the scheme lenders can swap their riskier mortgage-backed assets for safer Government bonds.

Lenders welcomed the announcement as an important step to tackling the current funding difficulties they faced, but warned that it was unlikely to lead to a reduction in mortgage rates for new borrowers in the foreseeable future.

In fact, the speed at which mortgage rates are increasing appears to be gathering pace, with lenders previously hiking the cost of their deals in increments of 0.1% to 0.2%, whereas increases of more than 0.5% are now becoming commonplace.

Meanwhile, more than two weeks after the Bank of England’s Monetary Policy Committee cut interest rates just under half of mortgage lenders have said they will be reducing their standard variable rates.

The majority are passing on the full 0.25%, but a handful are reducing their rates by less than this.

These lenders include the recently nationalised bank Northern Rock, which is reducing its SVR by just 0.1%, despite the Prime Minister’s call for lenders to pass on the reduction to their customers.