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Search forMortgage costs rise despite rate freeze
14:02 - 09-May-2008
One of the biggest lenders is increasing its rates, adding nearly £900 a year to the cost of repaying a typical mortgage.
The move by Alliance & Leicester comes as two City banks warned yesterday that the country's housing market is in the grips of recession.
Rising costs for the 11.8m homeowners who have a loan are contributing to falling house prices.
Michael Saunders, economist at the bank Citigroup, said: 'Something like what the U.S. is experiencing in terms of a serious housing crash is now under way.'
A further warning was made by Dresdner Kleinwort, which pointed to several danger signs, such as housebuilders struggling to sell new homes.
Alliance & Leicester's rate rise is just one of thousands hitting homeowners this year.
Interest on a two-year fixedrate mortgage for between 75% and 90% of a property's value was 5.74%.
From today the interest will be 6.49% - a 0.75 percentage point increase.
On a typical £158,000 mortborrowed-gage, the monthly repayments will rise from £993 to £1,065, a total of £864 a year.
The fees charged to arrange the mortgage have also shot up In January, the bank's best two-year fixed rate deal had an arranging fee of £999. Today, it is 2% of the amount
If you borrow £158,000, the fee will be £3,160. Alliance & Leicester is also raising its tracker rates, which follow the Bank of England's base rate.
A two-year tracker will rise from 5.99% to 6.39% for those wanting to borrow between 75% and 90% of a property's value.
Yesterday a spokesman for the bank said: 'The changes are designed to meet our business requirements. They reflect moves by competitors in a fast-moving mortgage market.'
Iain Cornish, chairman of the Building Societies' Association, warned that the mortgage crisis will not be solved by the Bank of England's £50bn rescue plan. Although it wouldn't 'restore mortgage lending to its former levels', it 'should help to underpin confidence', he said.
Amid the rising mortgage costs there are fears that repossessions will increase this year as homeowners fail to cope with the extra bills.
Figures from the Ministry of Justice today are likely to show rising numbers of properties are in the first stage of being repossessed.
The ministry's most recent data, published in February, already showed increases of up to 119% in some parts of the country.
Tomorrow housing minister Caroline Flint will unveil more help for homeowners unable to pay their mortgages, such as free legal representation at county courts.
Yesterday economists said they expect the Bank of England to cut rates next month by a quarter point to 4.75%.
- City bonuses are set to slump 40% this year after continuing losses in the credit markets, an economic consultant said yesterday. This year's bonuses will total £5.1bn, well below the £8.5bn haul in 2007, according to the Centre for Economics and Business Research.
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The motorist feels somewhat battered from all sides, seeing the oil companies going off with cash in their pockets and the Treasury filling its coffers
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