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Price of home loans is on the rise.

Homeowners are set to pay more for new fixed-rate mortgages despite the Bank of England's recent decision to keep interest rates on hold at a 48-year low.

Halifax, Abbey National, Woolwich, Nationwide, and Cheltenham & Gloucester have increased the cost of fixed rate mortgages, blaming the decision on movements in the money markets.

Banks have to borrow money from other institutions in order to offer customers fixed rate mortgages but, while the Bank of England's base rate remains at 3.5pc, the cost of borrowing has risen in the City.

Factors behind the upward move appear to include the expectation that interest rates will rise next year - and a decline in the value of bonds.

A Nationwide spokesman said: "In order to fund fixed rate lending we have to buy tranches of money in the City.

"Over the past week or so we have seen the rates available increase in cost by broadly the same amount by which we have had to adjust our rates.

"I think there has been a change in sentiment regarding both the UK and global economy - increasing consumer confidence has led people to believe that the next move in general interest rates will be up, even if that may not be until next year."

Halifax, the UK's biggest mortgage lender, yesterday announced a range of changes to rates depending on the type of fixed-rate mortgage a customer took out.

An existing home-owner wanting to borrow up to 80pc of the value of a new property with rates fixed for two years will now pay interest at 3.99pc - up from 3.79pc. A first-time buyer, borrowing up to 97pc of the value, will now pay 4.35pc rather than 3.79pc.

Meanwhile interest on a new two-year fixed rate mortgage with Abbey National has already gone up from 3.49pc to 4.29pc, while that on a new five-year fixed-rate mortgage has risen from 3.99pc to 4.69pc.

Nationwide, the UK's largest building society, this week put the interest rate on a new two-year fixed rate mortgage up from 3.59pc to 4.09pc.

Similar factors have led to Woolwich increasing its two year fixed-rate offering from 3.79pc to 4.19pc, with interest on a five year fixed-rate mortgage rising from 4.39pc to 4.49pc.

Cheltenham & Gloucester's two year rates go up from 3.99pc to 4.49pc from Monday for mortgages worth up to 90pc of the value of the property. Meanwhile its five-year rates rise from 4.29pc to 4.89pc.

But Alliance and Leicester managed to buck the trend - although the group has put up its five-year rate slightly from 4.09pc to 4.15pc, it announced this week that it was cutting its two-year rate from 3.59pc to 3.49pc.
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Title Annotation:Features
Publication:The Journal (Newcastle, England)
Geographic Code:4EUUK
Date:Aug 16, 2003
Words:462
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