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The cost of borrowing may be on way back up
MORTGAGES: Mortgage rates could be on their way up again as a result of this week's market turmoil.
One of the key inter-bank lending rates, three-month Libor, has risen from 5.7 per cent at the end of last week to 5.87 per cent yesterday, signalling a renewed reluctance among banks to lend to each other.
Commentators described the increase as "significant", adding that it bucked the recent trend of the rate gradually coming down.
The fall in wholesale funding costs led to most of the UK's largest mortgage lenders making repeated cuts to the cost of their deals, as they once again competed for business.
This led to two-year fixed rate mortgages returning to the level they were at before the credit crunch first hit, with a number of lenders offering deals at under five per cent.
But events in the markets, including the collapse of Lehman Brothers and confirmation of the merger talks between HBOS and Lloyds TSB, are likely to put an end to this trend.
Traditionally, Libor rates only impact the cost of variable rate mortgages, but the increase in the rate indicates a renewed wariness among banks, so they may they stop passing on any reductions in swap rates to new fixed-rate mortgage customers.
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Sunday 12 February 2012
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