New rate hikes in UK mortgage market

The Nationwide building society led another round of price increases yesterday in the UK mortgage market, putting up costs for the second time in a month.

The price of deals increased by as much as 0.5 per cent for new customers, including both those looking to remortgage and move home.

However, existing customers remain unaffected by the decision.

The lender – which is the biggest in the UK – argued it was forced into the move as the London Interbank Offered Rate (Libor) has remained stubbornly high.

As concern over inflation has increased in recent days, the rate has increased accordingly.

There are now fears inflation could move well beyond the target of two per cent – perhaps as high as four per cent – when the Bank of England releases the latest figures later today.

This has prompted Nationwide into its latest move.

While tracker deals with the lender and longer term fixed-rate options have increased by a minimum of 0.2 percentage points, the biggest increase has been on the cost of popular two-year and three-year fixed-rate products - particularly for borrowers who only have a ten per cent deposit.

These have seen the 0.5 per cent increase, adding £600 a year onto the cost of an average £150,000 home loan.

Nationwide customers now pay an average of 7.65 per cent for their deals – well ahead of the Bank of England's base rate of five per cent.

The news follows an earlier announcement from Woolwich – the mortgage lending arm of Barclays bank – that it is to withdraw all two-year fixed rate deals.

The lender also announced it is to boost fees on tracker-rate mortgages, in an attempt to discourage a proportion of a growing customer base.

The news follows research released earlier this week which finds the cost of a two-year fixed-rate deal is now the highest it has been for a decade.

Chris O'Toole