Fixed rates could reach 6pc within weeks

Published ¤ 25/06/2009

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The average cost of a two-year fixed-rate mortgage has broken through the 5pc barrier for the first time since January and could soon reach 6pc.

Lenders are now charging an average of 5.04pc to home owners who want to fix their repayments for two years, up from 4.92pc on Monday and 4.74pc at the beginning of last week.
The steep rise in the average rate seen in recent days has been driven by Nationwides decision to increase the cost of some of its fixed-rate deals for the second time in two weeks.
Nationwide was followed by the Woolwich, which raised the cost of one of its two-year fixed-rate deals by 0.7pc, and other lenders are now expected to increase their rates again in the days ahead.
Darren Cook of, the financial information group, said the cost of fixed-rate deals looked set to continue rising as lenders increased their rates so that they did not appear to be too competitive.
He warned that if the current trend continued, the average cost of a two-year fixed-rate mortgage could break through the 6pc barrier within two weeks, despite the Bank of England base rate being kept on hold at a record low of 0.5pc.
He said: "Banks are saying they do not want to be overly competitive and they are being forced to put up their rates, and this is having a spiral effect. If it carries on like this, within a couple of weeks we could see an average rate of 6pc."
Nationwide sparked the latest round of price increases when it repriced its entire fixed rate mortgage range on June 12.
Other lenders were quick to follow suit, with major groups such as Halifax, Cheltenham & Gloucester, Abbey and Alliance & Leicester all increasing the cost of the deals they offered.

The latest round of price rises is bad news for home owners, with almost 90pc of mortgage borrowers opting for a fixed-rate loan, according to Legal & General, in a bid to lock in to low borrowing costs before the base rate starts to rise again.

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The Telegraph
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