Credit squeeze sends FTB mortgage rates at 8-year high

Permalink: Credit squeeze sends FTB mortgage rates at 8-year high
by Kay Murchie

First-time buyer mortgage rates are increasing as a result of the credit squeeze and at their highest level for nearly 8 years.

Last month, the average two-year fixed rate deals for borrowers with only a 5% deposit increased from 6.55% to 6.64%, the most expensive since June 2000. Furthermore, track rate deals also increased from 5.96% to 6.04%, according to Bank of England figures.

There are now just 4,270 different mortgage deals on the market, compared with 15,599 last July. Consequently, borrowers with small deposits have seen the best deals withdrawn as lenders have deliberately sought to deter the ‘riskiest’ customers during the credit crunch.

However, lenders are being criticised for ripping off borrowers by not passing on any of the benefit of interest rate cuts by the Bank of England. The base rate of interest currently stands at 5.25% after reductions in December and February. However, the rate charged by banks and building societies have gone up by 0.32%.

George Buckley, chief UK economist at Deutsche Bank, said if borrowers did not know what had happened to official rates, they would say they must have increased because of what they are seeing in their mortgage bills.

Yesterday, former HBOS chief executive Sir James Crosby, was appointed by The Treasury to lead an emergency review of the mortgage market. His brief is to stop mortgage offers from drying up through measures to boost lending between institutions and to increase the range of investors in the field.

Yesterday, homeowners in London were warned that it will take 3 years for the market to recover fully. A report from property advisers Atisreal and Professor Patrick Minford forecast that prices in London would slump this year and next before rising slightly in 2010. Professor Minford said this is not a crash but it is a correction.