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Fixed rate mortgages rise as swap rates fall

20 July 2009 / by Andy Davies

Fixed rate mortgages are continuing to rise while swap rates fall, creating a widening gap between the two rates.

Figures released by John Charcoal found that in June lenders increased the cost of their five year fixed rate mortgages by around one per cent, despite a fall in swap rates - the rate at which mortgage providers lend to each other.

But the Council of Mortgage Lenders defended the banks' decision to increase rates, despite the fall in swap rates, saying that there are a number of influences affecting mortgage lenders' pricing strategies.

Reacting to the figures, Ray Boulger, senior technical manager at John Charcoal, said: "Since the end of last week a few lenders, namely Woolwich, Lloyds TSB, Cheltenham & Gloucester, Halifax and Britannia have announced small reductions of 0.1 per cent - 0.3 per cent in selected fixed rates.

"But in general lenders have at best left their fixed rates unchanged and some, including Northern Rock, have further increased their fixed rates, as a result of which many now look expensive."

Mr Boulger added that the combination of higher fixed rate mortgages and lower swap rates resulting in such a significant gap between five year swap rates and mortgage rates is "a huge movement in such a short time."

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