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Banks' borrowing cost rise; in association with RBS.

LENDERS' borrowing costs soared past the 6% barrier for the first time since December as the crisis gripping money markets showed no signs of easing.

The rate at which banks are prepared to lend to each other over three months hit 6% on Wednesday before rising further yesterday.

The rocketing costs have seen banks scramble to borrow from the Bank of England, with yesterday's weekly money auction almost three times oversubscribed.

Last week's auction was also in high demand, again nearly three times oversubscribed, despite the Bank doubling the weekly funding available to pounds 10.93bn just days after releasing pounds 5bn in funding.

Central banks around the globe have been pumping money into the markets in a bid to ease the crunch. The Bank of England met with commercial banks late last week as the credit squeeze tightened, with the cut price sale and rescue of US investment bank Bear Stearns having prompted further fears over the sector.

Governor Mervyn King also pledged further assistance in an attempt to restore waning confidence. Banks are continuing to rein in their lending as funding becomes more expensive.

Nationwide's specialist lending arm The Mortgage Works yesterday became the latest group to withdraw its 100% mortgage after being inundated with business.

There are now just seven lenders who have 100% mortgages, compared with about 40 in November, with Abbey the only group willing to offer the deals without conditions.

Matthew Wyles, chairman of Nationwide specialist lending, said: "Since the credit crunch bit towards the end of last year, the specialist lending market has been contracting rapidly because lenders have been unable to securitise the mortgages they are lending. We have seen a tremendous increase in demand for those lenders left in the market.

Lender UCB, part of Nationwide, announced yesterday increased the size of deposit from borrowers from 20% of a property's value to 25%.


AID PLEDGE Bank governor Mervyn King.
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Mar 28, 2008
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