Nationalised bank Northern Rock has increased its mortgage rates at a time when ministers are calling on banks to cut rates and start lending again in order to ease pressure in the financial markets.
While other lenders are cutting rates, following the 1.5 per cent November cut in the Bank of England base rate, Northern Rock has increased the rates on its fixed rate mortgage
deals by up to 0.3 per cent, adding as much as £40 a month to the cost of a £150,000 loan.
As the Libor falls to its lowest level for more than five years this week and the Government injects £37billion into the banking industry to encourage lending, mortgage customers may well wonder why Northern Rock's rates are going against the grain.
"We need to look at where we stand in relation to the competition," a spokesman said in defence of the rate increase, according to the BBC. "We said we would not originate more than 2.5% of new mortgages in any one year. Nor will we be a market leader in any product category for a sustained period of time," he added.
Similarly, Northern Rock recently temporarily withdrew the majority of its savings accounts
range as part of the conditions of its nationalisation, because its high savings rates were becoming too competitive.
The news could come as an embarrassment for the Government, which has been threatening banks with legislation if they do not make mortgage lending more affordable. Bank of England
Governor Mervyn King told the Treasury Select Committee this week: "I am in no doubt that the single most pressing challenge to domestic economic policy is to get the banking system lending in any normal sense. That is more important than anything else at present."
The Bank of England's Monetary Policy Committee is considering another dramatic rate cut in December, after widespread disappointment that mortgage lenders
have not brought their rates down as much as it was hoped following this month's cut to three per cent.
Michelle Slade, analyst at Moneyfacts.co.uk, commented: "The margin between the average fixed rate and swap rates continues to increase. Borrowers should be able to benefit from fixing their rates at much lower levels by now, but the cuts aren't filtering through.
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