Abbey increases fixed-rate mortgages
More of the UK’s biggest lenders have hiked the cost of their fixed-rate mortgages in reaction to the increasing cost of funding.
Last week, Nationwide increased the rate on its popular five-year fixed deal by up to 0.86%, with rates on its two-year fixed range rising by up to 0.61%. The changes mean that someone looking to borrow £150,000 on an interest-only basis the rate change will now have to pay an addition £6,450 over five years, according to brokerage John Charcol.
Now several other lenders - including Abbey, Lloyds and Halifax - have followed.
Abbey, the UK's second biggest mortgage lender, and Alliance & Leciester have increased the cost of their fixed-rate deals by between 0.25% and 0.5% while Lloyds has announced it is making fixed-rate loans from Cheltenham & Gloucester more expensive.
Nici Audhlam-Gardiner, director of mortgages at Abbey and Alliance & Leicester, says the rate rise is down to the increase in ‘swap rates’ – the cost of funding for fixed-rate loans on the money markets.
“Swap rates have increased substantially in May and June and in particular last week,” she explains. “Until now, we have absorbed the cost of these increases to protect borrowers - however, following competitor moves and further swap rate increases, it has become necessary to increase the rates on some of the deals we offer.”
Chelsea Building Society and the Principality have also increased the cost of their fixed-rate deals, says Louise Cuming, head of mortgages at moneysupermarket.com. "There has been a flurry of activity in the mortgage market, but unfortunately mostly to the detriment of borrowers,” she adds.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.