Page last updated at 15:06 GMT, Friday, 19 June 2009 16:06 UK

Mortgage rates jump in one week

Browsing an estate agent's window
Buying a home is now more expensive. despite no recent rise in bank rate

The past week has seen a big jump in the cost of fixed-rate mortgages to new borrowers, according to Moneyfacts.

The financial information service says interest rates for the average two-year deal have gone up by 0.16% to 4.9%.

Meanwhile the average five-year fixed- rate mortgage has risen by 0.21% since the start of the week to 5.82%.

Moneyfacts said the rise has been driven by the higher cost of inter-bank borrowing, and was the biggest jump since June last year.

"After a period of relative calm in the mortgage market, lenders are stumbling over each other to increase fixed-rate mortgages," said Michelle Slade of Moneyfacts.

"Just like last time, lenders are quick to pass any increase in the cost of wholesale funding on, but are never quite as quick to reduce rates when the cost of funding declines," she said.

The trend started a week ago with the Nationwide building society.

Since then it has been followed by 13 other lenders, including the Britannia, Cheltenham & Gloucester, Abbey, Woolwich and the Yorkshire building society.

David Hollingworth at mortgage brokers London & Country said "best-buy" deals had typically gone up in cost by about 0.5%.

"For borrowers, deals on the shelf are looking markedly more expensive," he said.

Best deals

With the official bank rate at 0.5% and highly unlikely to go any lower, fixed rate deals have become popular again this year.

They currently account for more than 60% of all new deals, as borrowers have sought to protect themselves against future increases in the cost of borrowing.

Earlier this week the Bank of England, in its latest report on lending trends, said lenders were also building a greater financial cushion into their loans, in case higher unemployment caused more borrowers to default.

"Greater credit risk, indicated by the increase in write-offs on mortgage lending, has also contributed to higher spreads," the Bank said.

"Lenders expect write-offs to increase further if unemployment continues to rise," it said.

Moneyfacts said the cheapest two-year deal currently on offer comes from the Natwest at 3.19%, for someone with a 25% deposit, paying a fee of £799.

The best five-year deal at the moment is from the Post Office with an interest rate of 4.45% for a borrower who can put down a 40% deposit and pay a fee of £599.

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