Homeloan rates 'edging up', experts warn


Borrowers searching for a fixed-rate mortgage deal will find that some lenders' rates have started to edge up, experts have warned.

They suggest that the withdrawal of the Government's Funding for Lending scheme for households as well as recent rises in swap rates, which lenders use to price their fixed-rate mortgages, are likely to have put some upward pressure on mortgage rates.

Santander and Britain's biggest building society Nationwide have tweaked some rates upwards slightly by 0.1% in recent days, according to financial information website Moneyfacts.

Rachel Springall, a spokeswoman for Moneyfacts, suggested that both swap rates and the withdrawal of Funding for Lending for households are having an influence on the market. She added that people looking for a fixed-rate deal may want to think about acting soon.

The Funding for Lending scheme was launched in the summer of 2012 and helped to ramp up competition in the mortgage market by allowing lenders to get access to cheap funding. But the initiative has been re-focused away from households and towards helping businesses for 2014.

Ms Springall said: "The market is beginning to change already. People have got used to these things (low rates) and expect them to be around forever. That was never going to be the case."

She said that in January, the Post Office was offering borrowers with a 20% deposit a rate of 3.29% for a five-year fixed-rate mortgage. This rate has now increased to 3.34%, while the fee attached to the deal has remained the same at £1,495.

Many borrowers have opted to lock themselves into longer-term fixed rate mortgages to cushion themselves against the prospect of interest rates eventually rising.

The Bank of England base rate has been held at a historic low of 0.5% for more than five years, helping to keep mortgage payments relatively affordable.

Bank governor Mark Carney recently refused to rule out a pre-election rise in interest rates, but he has stressed that any increase would be gradual.

Simon Gammon, head of broker Knight Frank Finance, said it is seeing increasing numbers of home buyers and owners choosing to fix their mortgage rate.

Mr Gammon said: "The cost of fixed rate deals is rising as lenders prepare for the Bank of England to increase bank rates, and this is driving the demand to get a good rate before they get too high."

Borrowers are also facing the prospect of toughened mortgage lending rules which come into force later this month, which are likely to see them being probed in more detail than before about their spending habits when they apply for a mortgage.

The Mortgage Market Review (MMR) rules come into force from April 26, to prevent any return to irresponsible lending.

They mean that lenders have to consider not only whether a potential borrower can comfortably afford their repayments now, but whether they will still be able to when interest rates eventually start rising. Lenders have been anticipating the new rules for some time.

Mike Hanson, chief executive of the Vernon Building Society, which is based in Stockport, said he believes that rising mortgage rates generally are a sign of the Government's Funding for Lending scheme petering out for household borrowers.

Discussing the signs of mortgage rates creeping up on BBC Radio 5 Live's Wake Up to Money programme, Mr Hanson said: "A lot of people might speculate that it's indicative that interest rates are set to rise...

"I think it's fair to say it's probably more indicative of the tail end effect of the Funding for Lending scheme.


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