Rock increases new mortgage rates

The nationalised bank is now charging more for home loans

The Northern Rock has raised the interest rates on most of its mortgage deals for new borrowers.

The cost of its one-, two- and five-year fixed rate deals is going up by between 0.2% and 0.3%.

A spokesman said the nationalised bank was doing this to avoid being a market leader for too long.

The bank has made a commitment not to take advantage of its state-backed guarantee when competing with other lending and savings institutions.

"We need to look at where we stand in relation to the competition," a spokesman said.

"We said we would not originate more than 2.5% of new mortgages in any one year.

"Nor will we be a market leader in any product category for a sustained period of time," he added.

Attractive

The bank recently cut its standard variable rate by 1.5% in line with the Bank of England's rate cut, to 5.84%.

But that is not available to new Northern Rock customers, only its existing ones, typically when their initial deals expire.

The Rock's one- and two-year deals are rising by 0.2%, while the three-year mortgages are going up by 0.3%.

As an example of how the new rates apply, a two-year fixed rate deal has gone up from 4.99% to 5.19%, for someone who can put down a 25% deposit and pay a £995 arrangement fee upfront.

Aaron Strutt, at mortgage brokers Chase de Vere, explained that the Northern Rock's current mortgage range was quite attractive compared to its rivals.

"They have low rates on several deals, albeit with high deposits, low fees, and will lend up to £1m," he said.

"The main selling point is that the are fully flexible, so you could pay off your mortgage down to just £1, and then borrow it all back again."