Home loan rates may increase

MORTGAGES FOR new homebuyers are likely to rise despite the Bank of England's decision to keep base rates on hold, leading lenders warned yesterday.

The Council of Mortgage Lenders said that it was becoming more expensive for banks to borrow money long term on the international money markets as economists started to forecast rises in interest rates over the next few years. The banks had to recoup these extra costs from their customers, it explained.

Michael Coogan, the CML's director-general, said it was unlikely that variable mortgages would change in the wake of yesterday's decision to keep rates at 5 per cent.

But he added: "For new borrowers, the increase in the cost of raising longer-term funds on the money markets seen in recent weeks is likely to result in marginally higher fixed- and capped-rate products."

Mortgage lenders are already under fire for failing to pass on to borrowers the benefits of the last two 0.25 per cent interest cuts.

While base rates have fallen 2.5 per cent since last October, Nationwide building society, for example, has cut its standard variable rate from 8.5 per cent, in October, to a 33-year low of 6.45 per cent - a difference of only 2.05 per cent.

A borrower with a pounds 60,000 interest-only mortgage pays pounds 306.38 a month now, compared with pounds 403.75 in October. If mortgage rates had fallen to 5.95 per cent, the monthly payment would be just pounds 282.63.

A Nationwide spokesman said: "We have to balance the needs of our savers, who have seen rates cut."

Fixed rates have already started to climb. Last month Halifax, the UK's biggest lender, raised its five-year fixed rate by 0.5 per cent to 6 per cent, following the 1 per cent rise in the cost of five-year money on the global markets.

Promise, the remortgaging arm of Credit Suisse, said the bank's decision was a relief to mainstream lenders, whose "fat profit margins" had been squeezed by recent rate cuts.

Neil Walkling, principal money researcher for the Consumers' Association, said lenders had to respond to changes in global markets.

But he added: "We think banks should be fair and transparent. They should not sneak in extra savings cuts while pretending they are trying to protect savers. But we appreciate they have to manage their balance sheet."

Kevin Gardiner, an economist with the City bank Morgan Stanley, said the financial markets were expecting rates to rise to 6.5 per cent by the end of next year.

"Fixed-rate mortgages have been selling like hot cakes. Not for the first time, the humble consumer may have been quicker than many City analysts at spotting a potential turning point in interest rates."

Euro tumbles, page 18

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine