Lenders hike mortgage rates

Some of Britain's biggest mortgage lenders have raised the cost of borrowing to battle the effects of the credit crunch despite expected further cuts in interest rates by the Bank of England.

It means first-time buyers or householders coming to the end of fixed-rate deals face the prospect of larger monthly mortgage repayments even though further cuts in interest rates are likely be announced in a fortnight.

Nationwide has upped the base rate of some tracker mortgages by 0.57 per cent and increase its fixed-rate mortgages by 0.2 per cent.

The rises, which only apply to new deals, have been announced due to the rising cost of financing mortgages and because other lenders had upped their rates, meaning more people than expected were applying for Nationwide's products.

Other lenders have withdrawn or repriced mortgage deals including First Direct, Cheltenham & Gloucester and Chelsea Building Society.

HBOS, Britain's biggest mortgage lender, said: "It is the law of supply and demand. There is less mortgage finance available and it is more expensive."

Last week, Bath Building Society and Earl Shilton Building Society both withdrew all of their products from the market except their standard variable deals.

A further seven small lenders have changed their lending criteria during the past two weeks, with most reducing the maximum proportion of a property's value they will lend on, in some cases to just 60 per cent.

Denise Harvey, mortgage analyst at Moneyfacts.co.uk, said: "It seems that there is no stopping it.

"Over the last two weeks, lenders have been even more ruthless in withdrawing products from the market and/or tightening their criteria.

"Until a couple of weeks ago it seemed that smaller building societies had escaped the worst. By funding their lending through deposits, they appeared to be immune from the problems facing the money markets. The last two weeks, however, have shown a very different story."

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