Mortgage lenders announce another round of rate rises

28 April 2008 / by Daniela Gieseler
The UK's largest mortgage lender Halifax has changed the rates of all of its fixed and tracker rate mortgages for the second time in eight days.

In a similar move to Cheltenham & Gloucester just a day before, Halifax upped a number of rates by up to 0.6 percentage points.

A Halifax spokesman defended the new rate increases: "Over the past few weeks, most major lenders have increased their pricing on a number of occasions." they said.

"Wholesale money continues to be significantly more expensive that it was a year ago. Unfortunately, this increased cost needs to be passed on to new customers by banks and building societies."

Having been left deprived of funds by the credit crunch, many lenders continue to keep a tight hold on their purse strings and change their deals almost weekly; since the beginning of the year, lenders like Abbey made as many as 11 and Cheltenham & Gloucester made 15 changes to their mortgage range.

Customers who have been lucky enough to gather a sufficient deposit for a mortgage now face considerably higher repayments after the new rate changes. Mortgages of £150,000 for example will cost homeowners up to £900 more in repayment charges every year.

Mortgage experts consider the lenders' new rate increase as a proof that the Bank of England's money injection of £50 billion has failed to serve its purpose.

"Clearly the action has failed to yet have an impact. With Halifax doing this, I am now pretty certain that the other major lenders will follow suit next week," Ray Boulger at John Charcol comments.

Research by Charcol also highlights that customers are losing out even more on increased arrangement fees and other hidden costs.

Most lenders now ask an average £1,000 arrangement fee for new mortgages. However, these fees are not included in the initial interest rate and, unbeknown to many customers, they make a considerable difference to their mortgage repayments.

For example, Chelsea Building Society advertises their two-year fixed rate mortgage with a rate of 5.49 per cent, but once the arrangement and exit fees are added it takes the effective rate up to 6.81 per cent.

A comparison between lenders shows that it is worth shopping around: HSBC customers pay £1,500 less a year for a loan of £125,000 on the two-year discount deal than those on a similar deal at Principality Building Society, because Principality charges higher set-up and exit fees than HSBC.

It's not all doom and gloom for those whose variable tracker rates are tied to the Bank of England's base rate, however, as the cost of their deals has dropped three times since December by about 0.05 per cent.

© Fair Investment Company Ltd