Fixed-rates fall to market fears: Mortgage lenders withdraw or re-price long-term loans after uncertainty over interest rates, writes Vivien Goldsmith

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The Independent Online
LONG term fixed-rate loans toppled yesterday as mortgage lenders reacted to rises in the money markets.

Most lenders are waiting until next week before offering a new range of fixes, although some have new five- year loans and others still have one- and two-year fixes at the old rates.

Instead of money markets forecasting interest rates to fall, or rise gently, they are predicting a steep rise. Lenders are not withdrawing from fixed- rate lending - it accounts for nearly half of all new loans for some - but are re-pricing their offerings.

The money market rates for five- year money were about 6.2 per cent last week. At the beginning of this week they had risen to 6.4 per cent, and yesterday stood at 6.95 per cent.

Eamonn Ferrin, marketing development manager of Bradford & Bingley Building Society, which withdrew all its fixed rates yesterday, said it was possible that the market had over-reacted to fears of rising interest rates, and the society would wait a few days for the market to settle down before bringing out a new range of fixes.

Abbey National brought out new rates last week. It scrapped its five- year rate and substituted a four-year rate. 'Rates were already hardening, and the four-year rate looked better value,' said Charles Toner, managing director of the retail division.

'My feeling is that these are relatively small adjustments. Rates are around the bottom.' The first move in the fixed-rate market came from Leeds Permanent which withdrew its highly competitive 6.75 per cent rate at 5.15pm on Thursday. It substituted a new rate 0.64 percentage points higher - a big jump in money market terms.

'That set the alarm bells ringing,' said Phillip Cartwright, senior manager at London & Country Mortgages. 'It made us sit up and take notice. Rates were withdrawn by National Counties, Britannia, NatWest, Woolwich, Barclays and Northern Rock. But National & Provincial came back with a five-year fix at 7.2 per cent to replace its 6.95 per cent. All was not as bad as it had at first seemed.'

Ian Darby, of brokers John Charcol, was not convinced that this was the signal that rates were now going to rise. 'This may be just a blip. There's an outside chance that in a couple of weeks when things have settled down rates could still go down.'

The five-year fixes are still at rates below the current variable rate - 7.74 per cent. 'The reaction has been over the top,' said Mr Darby. 'I'm concerned that people will rush into fixed rates without checking the redemption penalties, the fees and the compulsory insurances.'

Nationwide raised its rates on Wednesday last week. The three-year rate rose from 6.45 to 6.65 per cent, and the 10-year rate for those with a deposit of at least 15 per cent rose to 8.5 per cent.

Dennis Brockwell, marketing director, said the five-year rate at 7.25 per cent launched in December had become the least profitable fixed-rate loan. It was withdrawn yesterday.

Most lenders buy a block of fixed- rate cash on the money markets and can hold their rates until that block of cash runs out. They then have to refund at prevailing rates. Few lenders take the risk of moving interest rates themselves.

Borrowers who already lodged an application form for a fixed-rate loan should still get their fixed rate even if it has been withdrawn. Leeds, for instance, would not take any new applications after Thursday evening. Most others had a deadline on Friday.

Barnsley Building Society which launched a five-year fix at 6.99 per cent on Thursday said it would still be available until the end of next week.

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