Mortgage rates rise for new deals

image captionHome loans are becoming harder to find and more expensive to pay

Mortgage rates for new borrowers are continuing to rise.

At least 10 lenders, including some of the UK's biggest, have announced rate rises in the past week for people taking out new deals.

Also, Bank of England figures show that the average two-year fixed rate deal, with a 25% deposit, has risen from 2.9% last September to 3.45% in March.

The moves are further evidence that obtaining a mortgage is likely to become more expensive and difficult.

The figure for the average two-year fixed rate deal in September was the lowest on record after rates for such deals had fallen from a recent peak of 6.35% in the middle of 2008.

"Lenders seem to have increased their rates in two stages this week, some at the beginning and the others catching up later in the week," said Aaron Strutt of mortgage brokers Trinity Financial.

Interest rates, as set by the Bank of England have been at a record low of 0.5% for almost three years.

Lenders argue that increasing mortgage rates are due to the rise in the cost of raising funds, from both ordinary savers and the wholesale financial markets, to then lend to homebuyers.

Sue Anderson, of the Council of Mortgage Lenders, said: "Funding costs have been experiencing upward pressure for lenders, who have been operating at low margins."

"So at some point lenders will take the decision to raise rates for good balance sheet management," she added.

Fewer deals

In March, the Bank of England reported that banks and other lenders were preparing to restrict their mortgage lending even more in the coming months.

That was despite the lenders expecting to see a rise in demand from potential borrowers.

Among those making changes to parts of their mortgage ranges this week have been Abbey, HSBC, Halifax, Lloyds TSB, Santander, Britannia, and Cheltenham & Gloucester.

Their new deals, for fixed, tracker or discounted home loans, have typically been repriced with interest rates now between 0.1% and 0.4% higher than before.

"When you take into consideration that some lenders have raised their rates at least twice in the past month, they all add up," said Aaron Strutt.

In some cases, deals have simply been withdrawn, leaving existing but more expensive ones on offer.

Market 'dampened'

At the start of April, the financial information service Moneyfacts noted that the past two months had seen a sudden drop in the total number of mortgage deals available to borrowers.

Even before that, lenders had started to rein in their riskier interest-only mortgage lending, with many lenders now demanding at least a 50% deposit from borrowers interested in this type of loan.

The National Association of Estate Agents (NAEA) said that development, along with the end of the stamp duty concession for first-time buyers last month, might lead to sales falling back again, after they had picked up in the run-up to the expiry of the concession.

"The recent move by some major lenders to severely limit the availability of interest-only mortgages is no doubt dampening the levels of supply in the market," said Wendy Evans-Scott of the NAEA.

In the past six weeks, several lenders have also announced increases to the cost of their standard variable rate mortgages for existing borrowers.