Rates rejig from mortgage lenders

Lenders have been regularly changing the cost of new deals

Some of the UK's biggest mortgage lenders have again shuffled the cost of their deals for new customers, as the financial squeeze continues.

Halifax and Abbey have increased the cost of short-term fixed-rate mortgage deals, but have passed on last week's rate-cut to existing borrowers.

They blame the continued high cost of lending between banks as a result of the credit crunch.

Ministers will meet lenders next week to discuss the state of the market.

There has been better news for existing mortgage holders on variable rate or tracker deals, who are benefiting from last week's drop in base rates, as both lenders have passed on the 0.25% fall.

Rate changes

Halifax, the UK's biggest mortgage lender, has increased the interest rates of its new two-year fixed and two-year tracker mortgages by 0.5%. Existing customers will not be affected.

Changes in Halifax mortgage costs for new customers Two year fixed rate for homemovers - up from 5.62% to 6.12% Two year tracker for homemovers - up from 6.29% to 6.79% Two year fixed for a remortgage - up from 6.19% to 6.69% Two year tracker for a remortgage - up from 6.49% to 6.99%

Fixed rate deals are generally funded by lenders buying a package of money at a wholesale price and then lending it out at a slightly higher rate.

The Halifax said this wholesale price was much higher compared with the Bank of England's base rate than it had been for some months.

"Unfortunately, because of the very expensive cost of wholesale money, we have no option but to pass on this cost to new customers," a spokeswoman said.

Rates for three, five and 10-year deals have been frozen, although an average increase in rates of 0.12% across all new Halifax mortgages was announced 12 days ago.

Tracking back

Abbey has increased the cost of its five-year fixed rate deals by up to 0.1%.

Chancellor Alistair Darling talks to the BBC

Twenty percent of outstanding mortgages are based on the standard variable rate or non-tracker variable rate, accrding to the Council of Mortgage Lenders.

Twenty-five to 30% track the base rate and 45% to 50% are fixed rate deals.

Both lenders, along with the other major providers, have now passed on last Thursday's 0.25% cut in interest rates by the Bank of England's Monetary Policy Committee to those on variable rate deals.

At the weekend, Chancellor Alistair Darling told the BBC that mortgage lenders should "play their part" by passing on interest rate cuts to homeowners.

Richer or poorer?

The Abbey was the last lender to withdraw 100% mortgage deals in the UK when it made the announcement last week.

One reason banks do not want to do as much mortgage lending as they did, say, a year ago is simply that housing looks more risky as an investment than it did then. BBC Economics Editor Stephanie Flanders Read Stephanie's analysis of the credit crunch

This completed a trend that started in February when lenders, including Northern Rock, withdrew their 125% mortgage deals.

Borrowers seeking the best deals now find themselves having to put down a deposit of 25% or more for their homes, that is a figure of around £48,000 for the average home.

In new research, market analyst Mintel claimed that mortgage costs account for 25% of consumer spending, while 10 years ago this was nearer 14%.

It said that in a poll of 2,000 people, some 57% have recently had to cancel their spending plans because they were uncertain about their personal financial situation.

But analysis by Capital Economics has found that interest rate cuts since December have helped existing mortgage-holders financially.

With the average mortgage at £100,000, people on existing tracker and variable rate mortgages have seen their monthly repayments fall on average by £45, Capital Economics said.