Page last updated at 14:12 GMT, Thursday, 25 September 2008 15:12 UK

'Rate rise' warning to borrowers

For sale sign
The housing market has seen a lack of activity in recent months

HSBC has announced it is raising some mortgage rates amid warnings to borrowers that the cost of new home loans is expected to go up in general.

The global economic turmoil has again made mortgage providers reluctant to lend to each other.

This has led to some lenders starting to push up interest rates and others putting their rates under review.

It comes after two months of falling mortgage costs, but brokers expect further volatility ahead.

'Expect changes'

HSBC is increasing fixed-rate deals for new borrowers with a 10% deposit by 0.3 percentage points to 6.27%.

It is almost impossible for consumers to try to second guess what is going on when the market does not know
David Hollingworth
London and Country mortgage brokers

It continues to aim to attract "safer" borrowers by cutting costs on a fixed-rate deal for those offering a 25% deposit.

From 1500 BST on Friday 26 September, the bank's internet arm First Direct will raise its two-year fixed rate deals by 0.2 percentage points.

The changes come as swap rates, which influence the cost of home loans, are rising sharply.

Libor, or the London Interbank Offered Rate, is the rate at which banks lend money to each other. The three-month rate has reached its highest level since December, rising well above 6%.

"I think the majority of lenders are looking at the pricing of their mortgages. We could see a lot of changes over the next few days," said Aaron Strutt of mortgage brokers Chase De Vere.

All change?

The Yorkshire Building Society changed a number of deals earlier this week. From Friday, Abbey is cutting its two-year fixed-rate deals for people with a 15% deposit and adding to the number of three and five-year deals.

Mortgage application
Mortgage interest rates had been dropping in recent weeks

Government-owned Northern Rock also told the industry that it was keeping its home loan costs under review. It warned that it could be changing its range at short notice.

Others are expected to follow suit, although Britannia is cutting its interest rates on new deals slightly.

David Hollingworth, of London and Country mortgage brokers, said this was likely to be an exception.

For the last two months, the cost of new mortgages dipped quite sharply, along with the costs to banks of borrowing wholesale funds on the financial markets.

Figures from the Bank of England show that the average two-year fixed-rate deal for those offering a 25% deposit fell from 6.6% at the end of June to 6.08% at the end of August.

But the latest turmoil has changed the picture for mortgages yet again.

"We have to look at the trend of falling rates coming to an end," said Mr Hollingworth.

"It is almost impossible for consumers to try to second guess what is going on when the market does not know."


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