More Mortgage misery

Homebuyers are facing more mortgage misery after the cost of fixed-rate loans spiralled to a 10-year high. The average two-year fixed rate now stands at 6.75 per cent with the typical five-year deal now coming in at 6.72 per cent.

Nationwide Building Society and the Woolwich are the latest lenders to add to the agony. Their moves will have been heavily influenced by the curse of Friday the 13th when swap rates soared to 6.49 per cent.

And with the outlook for inflation leaving the Bank of England no scope to cut rates the fall-out seems certain to get worse before it gets better.

It is the second time in a fortnight that Nationwide has jacked up the cost of borrowing.
And despite two base rate cuts earlier this year the society has felt the need to raise its charges on an astonishing six occasions since January.

The latest increases will hit first-time buyers – already an endangered species – hardest.

Anyone wanting a 90 per cent loan with will be charged 6.95 per cent, up from 5.85 per cent at the start of the year. Monthly repayments on a typical £150,000 loan will now be £1,055 – up from £952 in January.

Meanwhile, the Woolwich is withdrawing all its two-year fixed-rate deals and raising fees for its tracker products from £595 to £995. It follows the Halifax decision to reserve its best deals for low-risk customers borrowing 60 per cent of their property’s value or less.

The latest rises come amid growing expectations that the Bank of England could be forced to raise interest rates to curb inflation. If it does it is likely to lead to further increases in the cost of home loans.

Perversely, in the highly unlikely even that the Monetary Policy Committee were to cut rates the chances are it would make little or no difference. This is because the traditional link between the base and the Libor rate at which banks lend to each has appears to have become fractured.

This means mortgage rates are likely to remain high, regardless of what happens to base rates. For many young buyers, the recent rate rises and increase in mortgage fees have wiped out any benefits of falling property prices. As a result many are sitting on their hands waiting for prices to fall further.

Matthew Carter, a director at Nationwide, said: "While markets remain volatile, we can expect to see frequent changes to fixed-rate mortgages across the industry."

He is right but for now it seems the changes will only be up. So if you’re looking for the peace of mind afforded by a fixed rate it could pay to act swiftly.

By Clinton Manning

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