Mortgage rates rise amid global economic turmoil as predicted

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by Kay Murchie

The recent events in the financial markets have put further pressure on the UK’s frozen mortgage market after HSBC has become the first major High Street bank to announce rate rises.

The news comes after two months of falling mortgage costs, as well as the costs to banks of borrowing wholesale funds on the financial markets.

Bank of England figures show that the average two-year fixed-rate deal for those offering a 25% deposit declined from 6.6% at the end of June to 6.08% at the end of August.

However, Libor (London Interbank Offered Rate), which is the rate at which banks lend money to each other, has surged recently and the three-month rate has reached its highest level since December, rising well above 6%.

As a result, many lenders have started to push up interest rates while others are reviewing their rates.

HSBC is increasing mortgage rates by 0.3% to 6.27% for borrowers who have a 10% deposit. However, the bank is trying to entice less riskier borrowers by reducing costs on a fixed-rate deal for those offering a 25% deposit.

Earlier this week, the Yorkshire Building Society increased its rates by up to 0.4%.

According to Aaron Strutt of mortgage brokers, Chase De Vere, the bulk of lenders are looking at the pricing of their mortgages while other lenders are expected to follow in HSBC’s footsteps.

The news of rising mortgage rates comes as Fairinvestment.co.uk found that it could take first-time buyers 15 years on average to save a deposit for their first home.

According to the Halifax, the average house price currently stands at £174,178. Fifteen percent of this is £26,127 and with the average amount of £139 being saved each month, this equates an annual total of £1,668, taking approximately 15 years to save the amount required.