Page last updated at 15:14 GMT, Wednesday, 11 June 2008 16:14 UK

Abbey raises new mortgage costs

Abbey branch
Taking a 95% mortgage has become even more difficult at the Abbey

Abbey, one of the biggest mortgage lenders in the UK, has made it more expensive for some borrowers to take out a new home loan.

Anyone taking its 95% mortgage deal must now pay the arrangement fee of 2,499 up front, instead of simply adding it to the sum of the loan.

The change is the latest example of a bank tightening its lending criteria during the current credit crunch.

Most mortgage lenders now require at least a 10% deposit from borrowers.

The move will force those customers who are interested in the deal to save more money before taking the loan.

But Abbey said its move would, in practice, affect very few new borrowers.

"Loan to value (LTV) ratios of above 90% are not our core market and account for less than 3% of the business we do," said a spokeswoman.

"Our average LTV is 48%," she added.

Rising costs

Abbey has only one deal on offer for borrowers who have just a 5% deposit and it is fixed for five years at 7.04% .

In recent weeks lenders have been raising the cost of mortgages for new borrowers because the cost of borrowing the funds in the financial markets has been going up.

The Halifax, Nationwide, Bradford & Bingley and Abbey itself, have been among the lenders who have been pushing up the cost of new fixed-rate deals.

This week the Bank of England revealed that the average cost of a two-year fixed deal, to someone with a 25% deposit, had risen to an eight-year high in May.

The average interest rate charged for such a mortgage by the UK's banks and building societies was 6.27%, up from 6.06% in April.

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