Mortgage News Mortgage Prices To Rise Despite Base Rate Cut 1377
Mortgage prices to rise despite base rate cut
11 April 2008 / by Joy Tibbs
The UK’s second largest mortgage provider, Nationwide, announced yesterday that it will lower its base mortgage rate by 0.25 per cent to 6.49 per cent in line with the base rate cut. It is also relaunching a three-year fixed-rate mortgage with a lower rate.
However, it failed to mention that some of its fixed-rate deals will increase by between 0.12 per cent and 0.32 per cent today, despite the fact that it increased rates by 0.2 per cent just two weeks ago.
Meanwhile, Alliance and Leicester has increased rates for the second time in under a week. While it offered a fixed-rate mortgage deal of 4.99 per cent on April 7, the rate for the same deal is now 5.74 per cent. Other mortgage companies raising rates include Britannia Building Society and Royal Bank of Scotland.
If mortgage lenders fail to pass on cuts, the government’s gamble to lower rates despite the risk of an inflation rise may not pay off. “The decision made by the Bank of England today will come as a welcome relief to many and will help restore much needed confidence back into the market, chief executive of the National Association of Estate Agents (NAEA), Peter Bolton King, said yesterday.
“However, moving forward, it is now more critical than ever that mortgage lenders adopt a similar approach and lower mortgage rates in line with today’s drop. The London Interbank Offered Rate (LIBOR) also needs to act fast, as they too play a major role in restoring consumer confidence in the market.”
And the rate cut is unlikely to do savers many favours either. The interest rate paid on NS&I;’s Direct ISA is to drop from 5.55 per cent to 5.30 per cent, and rates on other savings accounts savings accounts are also likely to fall following the rate cut decision.
However, the situation may not all be doom and gloom for savers. Abbey is among the few savings account providers that dared to raise its eSaver Direct rate earlier this week to 6.5 per cent, despite the likelihood of a rate reduction. Competition to hold onto, or build on, market share has prevented several banks and building societies from slashing rates.
Head of savings at moneysupermarket.com, Kevin Mountford, says: “Savers really are in the enviable position of being able to pick and choose where they stash their cash – amidst all the gloom around mortgages, institutions are still desperately trying to rake in as much as they can in retail deposits.
“But as ever, people need to check the terms and conditions of their account carefully, as many of the high rates can be made up of a short-term bonus which is usually for a limited time only, or there could be penalties for withdrawal.”
© Fair Investment Company Ltd