Mortgage rates hiked again
The UK's biggest building society today said it was increasing the cost of its fixed-rate mortgages for the second time in two weeks.
Nationwide is raising rates on 38 per cent of its fixed rate loans, increasing them by an average of 0.23 per cent.
The move comes just a fortnight after the group repriced its entire fixed rate range, hiking rates by up to 0.86 per cent in response to higher wholesale funding costs.
The increases sparked a round of rate rises among other lenders, with major groups such as Halifax, Cheltenham & Gloucester, Abbey and Alliance & Leicester all increasing the cost of the deals they offered.
The changes were enough to push up the average cost of a two-year fixed-rate mortgage from 4.74 per cent at the beginning of last week to 4.92 per cent today.
Darren Cook, of financial information group Moneyfacts.co.uk, warned the average rate looked set to continue rising to more than 5 per cent or even 6 per cent during the coming weeks.
He said: "During the next week I wouldn't be surprised if the average rate increases to 5 per cent and continues rising."
The increases have been driven by steep rises in swap rates, upon which fixed-rate mortgage deals are based.
Two-year swap rates have soared from 1.98 per cent in the middle of May to 2.34 per cent today, peaking at around 2.5 per cent on 11 June.
Mr Cook said there was generally a 10-day lag between a steep increase in swap rates and lenders increasing their mortgage rates, as groups are currently buying only small tranches of funds through the wholesale markets.
Average margins on two-year fixed-rate mortgages are now three times higher than they were before the credit crunch struck at 2.58 per cent, compared with a historical average of around 0.8 per cent.
Nationwide is increasing the cost of its two-year fixed-rate mortgage for homebuyers with a 40 per cent deposit who pay a £995 fee by 0.2 per cent to 4.18 per cent, while the same loan for someone borrowing up to 75 per cent of their home's value is rising by 0.3 per cent to 4.58 per cent.
However, many of its deals for people borrowing more than 75 per cent of their home's value remained unchanged. The new rates come into effect from tomorrow.
Andy McQueen, mortgage director at Nationwide, said: "Recent moves by competitors have required us to review the pricing of selected fixed rate mortgages.
"We are making these changes to ensure we continue to maintain an appropriate mix of business on these products."
It also emerged today that nationalised bank Northern Rock increased the cost of the majority of its fixed rate deals over the weekend by up to 0.7 per cent.
The group raised rates on its two-year fixed-rate loan for people borrowing 65 per cent of their home's value who pay a £995 fee by 0.44 per cent to 4.09 per cent, while its five-year fix with the same fee for people borrowing up to 75 per cent of their home's value rose by 0.7 per cent to 5.79 per cent.
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