The Inside Edge
Some of the UK’s biggest lenders have announced fixed rate mortgage rate rises this week as they finally succumb to the pressures that funding costs provide. At least ten lenders will have announced their increases by the time April comes to an end making it ever harder to obtain home loans for new purchasers.
The Bank of England has also announced that an average two year fixed interest mortgage backed by a 25% deposit has risen from 2.9% last September to 3.45% in March. However, that September 2011 figure marked an all-time recorded low after this type of funding peaked at 6.35% in 2008.
The Council of Mortgage Lenders (CML) indicate that this latest batch of rises backs up their claims that rates would have to increase because funding costs meant that the current low levels were unsupportable.
“Funding costs have been experiencing upward pressure for lenders, who have been operating at low margins,” said Sue Anderson of the CML.
“So at some point lenders will take the decision to raise rates for good balance sheet management,” she added.
The market seems to be experiencing a typical ‘reverse domino’ effect with lenders reacting to rises from their competitors and increasing their own rates accordingly.
“Lenders seem to have increased their rates in two stages this week, some at the beginning and the others catching up later in the week,” said Trinity Financials’ Aaron Strutt.
Among those increasing their rates this month are Abbey, Halifax, Santander, Lloyds TSB Britannia, HSBC, and Cheltenham & Gloucester.
“When you take into consideration that some lenders have raised their rates at least twice in the past month, they all add up,” Aaron Strutt added.
The figures also come at a time when certain organisations were pointing to a market dampening and the impact of greater restrictions on lending criteria. At the beginning of March, the Bank of England warned borrowers to expect more difficulty in obtaining finance and that seems to be the case.
The National Association of Estate Agents (NAEA) are also concerned at the moves which they believe will stunt a market which had showed signs of improvement during the stamp duty holiday.
“The recent move by some major lenders to severely limit the availability of interest-only mortgages is no doubt dampening the levels of supply in the market,” said Wendy Evans-Scott of the NAEA.
There have also been rises in the variable rate offered by some lenders and it is widely expected that more will follow the lead of their rivals in the weeks to come.