Abbey is to increase rates on its fixed mortgage deals today - its second price hike in a period of just two weeks.
The lender will increase prices on its five-year fixed rate range by between 0.07% and 0.26% on 9 June. This follows it increasing rates on two and three-year fixed products on 29 May by between 0.15% and 0.56%.
Abbey is not the only lender to readjust the pricing on fixed rate deals. Bradford & Bingley has today increased rates by between 0.05% and 0.55%, while Alliance & Leicester, Nationwide, HSBC, the Post Office and Woolwich have all put their prices up in the past two weeks.
The Cheshire Building Society and Scarborough Building Society also increased the rates on their fixed mortgages.
Despite interest rates remaining frozen at 5% since April, when they fell by 0.25%, the cost of funding for fixed-rate mortgages (known as swap rates) has risen to over 6% - forcing lenders to put up prices.
David Hollingworth, mortgage specialist at London & Country mortgage brokers, says rate rises are “inevitable”.
“If swap rates don’t calm down then more lenders will have to take action and increase their pricing,” he adds.
Hollingworth believes there is also a strong possibility that tracker rate mortgages may increase in price as Libor - the short-term bank loans often used to price this type of variable mortgage - has also increased recently, though not by as much as swaps.
The increase in swap rates is a result of the Bank of England’s warning that tackling inflation comes before interest rate cuts.
“The market was expecting rate cuts, which is why swap rates and Libor fell slightly, but after the Bank of England effectively ruled out any radical rate cuts, sentiment deteriorated and rates have increased again,” explains Hollingworth.
Ironically, the interest rate freeze in June is likely to force more lenders to put up rates because it reinforces the central bank's policy to focus on tackling inflation. This means swap rates and Libor are unlikely to fall anytime soon.
An Abbey spokesman says: "The last two weeks have seen a volatile swaps market, which is still feeding through. It is likely that while the mortgage market remains volatile, we will continue to see frequent changes to rates."
Meanwhile, First Direct - which recently reopened its doors to new borrowers after temporarily leaving the market in April - has reduced the cost of its two-year fixed mortgage. The deal has seen its interest rate slashed from 5.76% to 5.59%, while its fees has reduced from £1,499 to £999.
It has also reduced the cost of its low-fee two-year fixed mortgage, from 6.2% to 5.89%.