Page last updated at 15:55 GMT, Monday, 16 June 2008 16:55 UK

Nationwide raises mortgage rates

Nationwide branch
Volatility in the mortgage market is expected to continue

The Nationwide building society is increasing its mortgage interest rates by up to 0.5% as volatility in the mortgage market continues.

The rises in fixed-rate and tracker deals for new customers and those remortgaging come into force on 17 June, the lender said.

It is blaming the cost of inter-bank borrowing and moves by other lenders.

The Woolwich, the mortgage arm of Barclays, is withdrawing two-year fixed-rate deals on the same day.

10-year high

According to the financial information service Moneyfacts, fixed rate mortgages are now at their most expensive for a decade.

"The average two year fixed rate stands at 6.75%, the highest rate we have seen in the last 10 years," said Darren Cook of Moneyfacts.

"Customers looking to fix their mortgage for five years are also paying the price as the average rate has increased to 6.72%.

"The situation is likely to get worse before it gets better," he added.

Volatile market

For new borrowers with just a 5% deposit, the Nationwide is raising the rate on its two-year fixed deal from 7.35% to 7.65%.

That means it is now up to 1.4% higher than the industry average a year ago.

Bank of England figures show that the average interest rate across all lenders at the end of June 2007 was 6.26%.

Rates on all of the Nationwide's fixed and tracker rates are rising by at least 0.2% - the second increase in June.

The biggest rise is the 0.5% lift in two and three-year fixed rate deals for people who offer a deposit of 10% of a property's value.

That would make the typical 150,000 mortgage around 600 a year more expensive for those signing the deal from 17 June.

'More changes'

"We have seen continued large rises in money market rates together with further competitor activity and as a result it has been necessary to increase the rates on our range of mortgages," said Nationwide's divisional director for mortgages Matthew Carter.

"While markets remain volatile we can expect to see frequent changes to fixed rate mortgages across the industry."

The Woolwich also blamed volatility in the market for the decision to temporarily withdraw its two-year fixed-rate products on 17 June.

It said it was also making changes to some tracker deals, such as increasing the fee on some offset mortgages.

At least 14 lenders, including the Halifax, RBS, and Birmingham Midshires, increased the cost of various fixed-rate deals during two days at the end of last week.

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