Major lender raises mortgage rates

HSBC today became the first of the major lenders to announce it was hiking its mortgage rates following the recent jump in wholesale funding costs.

The group is increasing its fixed-rate deals for borrowers with just a 10 per cent deposit by 0.3 per cent.

It is also introducing a new loan to value tier of 75 per cent on its fixed-rate range, and it is cutting rates on these deals by 0.2 per cent.

The group justified the move by saying that swap rates, upon which fixed-rate mortgages are based, had risen sharply during the past week following the recent financial turmoil.

It added that mortgages for lower risk borrowers with larger deposits were cheaper to fund than those for people who did not have as much money to put down.

But the group added that it was reducing arrangement fees for people borrowing 90 per cent of their home's value from £799 to £499, while fees for people taking out a 75 per cent loan to value ratio would be £999.

Following the change, which comes into force tomorrow, a two-year fixed rate mortgage for someone with a 10 per cent deposit will cost 6.27 per cent, while one for someone with a 25 per cent deposit will cost just 5.79 per cent.

HSBC is the first of the major lenders to increase its rates, but other groups are expected to follow suit in the coming days.

Two-year swap rates have soared from 5.18 per cent last week to 5.56 per cent yesterday, while three-month Libor rates, upon which tracker mortgages are based, have increased from a recent low of 5.7 per cent to 6.2 per cent, the highest level since December last year.

Last week specialist lender GE Money, which lends under the First National and iGroup brands, announced rises of up to 1.6 per cent, while smaller players, such as Yorkshire Building Society, have also increased the cost of some of their deals.

The move by HSBC brings to an end the most prolonged period of falling mortgage rates since the credit crunch first struck.

Rates had been steadily decreasing since the beginning of July in response to lower funding costs.

The trend helped the average cost of a two-year fixed-rate mortgage return to its pre-credit crunch level, as lenders again competed for business.

A renewed round of rising mortgage rates is likely to increase pressure on the already struggling housing market.

There are also fears that the rate hikes will be accompanied by a further tightening in lenders' lending criteria, making it harder for first-time buyers to get on to the property ladder.