Page last updated at 12:28 GMT, Wednesday, 28 May 2008 13:28 UK

Abbey reverses mortgage rate cuts

Abbey branch
Abbey says it has to pass some higher costs on to customers

Abbey has reversed cuts it made to mortgage rates two weeks ago, one of two lenders lifting borrowing costs.

The Abbey is raising rates on new fixed-rate deals by between 0.15% and 0.56% from 29 May.

On the same day, the Woolwich - the mortgage arm of Barclays - is putting up the cost of mortgages sold through brokers by up to 0.3%.

A survey shows that the average mortgage deal is now on offer for only 11 days, down from 30 days a year ago.

'Competitive rates'

Brokers say that Abbey has been offering some of the more competitive rates recently for homebuyers able to provide a 25% deposit.

On 16 May, it cut flexible and tracker rates by 0.05% and some fixed-rate deals by up to 0.17%.

But it blamed rising inter-bank borrowing costs, the key to mortgage rates, for the most recent changes.

The argument was criticised by Louise Cuming, head of mortgages at price comparison site moneysupermarket.com.

"While swap rates have risen by around 0.5% in the past month which could justify this hike, Abbey is only adding to confusion and volatility by reducing rates on fixed deals last week only to raise them again this week," she said.

The Woolwich is putting up the cost of some new two-year fixed-rate deals sold through intermediaries by 0.1% and some 10-year fixed-rate deals by up to 0.3%. There are also some new rates for new customers going to branches direct.

Shelf life

The changes bring to an end a relatively quiet period of mortgage rate fluctuation in recent weeks.

The ability to time the mortgage market has become more of a lottery than an art
Darren Cook, Moneyfacts

But Aaron Strutt, of Chase De Vere Mortgage Management, said that possible future rises meant that anyone sitting on a mortgage offer should act quickly.

Research by financial information service Moneyfacts found that last year, when there were 15,000 mortgage products on offer, deals were available for about 30 days.

Now, with 3,814 deals available, the chance to sign up for one of these before it changed had contracted to 11 days.

In April, the average shelf life was down to just six days.

"I believe banks and building societies are being forced into these measures due to current market uncertainty," said Darren Cook, of Moneyfacts.

He added that the situation was particularly difficult for homeowners planning ahead for when their current fixed-rate deal comes to an end.

"Unfortunately, until the current market readjustment is complete, the ability to time the mortgage market has become more of a lottery than an art, with the majority of today's better deals expected to have disappeared by this time next week," he said.


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