Mortgage giants look to rein in lending mortgages

Two of Britain's biggest lenders announced sudden plans yesterday to hike the price of their mortgages, as the credit crunch continued to put pressure on the banking sector's margins.

Nationwide revealed that it was raising the rates on its tracker mortgages by between 0.51 and 0.57 percentage points, pushing them as high as 7 per cent for some borrowers. Meanwhile, First Direct said it was withdrawing its popular 4.75 per cent two-year tracker deal at midnight, replacing it with a 4.95 per cent mortgage.

The moves came as the British Bankers' Association unveiled new statistics, illustrating the continued deterioration in the UK mortgage market. Gross mortgage lending fell slightly to £17.9bn in February – the vast majority of which was accounted for by remortgages.

However, year on year, the number of mortgage approvals is now down more than 33 per cent to 43,870, close to the lowest number on record.

Melanie Bien, a director of independent mortgage broker Savills Private Finance, said Nationwide had in effect priced itself out of the market with its tracker mortgage hikes.

"While its mortgage range was pretty competitive before the hikes, this is no longer the case," she said. "Nationwide has chosen to chase margin rather than market share: any lender with a competitive deal is being inundated with business at the moment and many of them are coping with this by pricing themselves out of the market.

"Although Libor has also risen this week to 6 per cent, these tracker rates are much higher than the cost of borrowing in the money markets, illustrating the continuing problems with lack of liquidity and also that lenders are looking to improve profits rather than appeal to new customers."

First Direct's mortgage has been so popular recently that it has taken weeks to return calls to some prospective borrowers. However, it reassured customers yesterday that if they had made inquiries before midnight last night, they would still be offered a home loan at the lower rate.

David Hollingworth of London & Country, the fee-free broker, said that repricing by Nationwide and First Direct showed that borrowers cannot afford to hang around if they need a mortgage. "The message to potential borrowers is that if they delay they could be hit in the wallet, as nobody's deals are getting any cheaper," he said. "Although you will still be able to get a mortgage, the question will be at what price."

Howard Archer, the chief UK economist at Global Insight, said yesterday's news showed that there was still a high risk of a full-scale housing crash in the UK. Currently, he predicts that house prices will fall by about 5 per cent this year. "Housing demand will be hit by fewer and more expensive mortgages being available," he said. "Furthermore, there is a growing danger that the UK economy will suffer recession, or extended weak growth, and that unemployment will increase significantly. This would be liable to lead to a marked increase in the number of people having to sell houses for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house."

The BBA figures also revealed a sharp fall in the amount of unsecured credit being granted to consumers in February. The amount handed out in personal loans is now down almost 7 per cent compared with the same time last year.

While credit card spending is up by about 5 per cent since February last year, it was down slightly month on month. Furthermore, credit card repayments continue to outstrip new spending.