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Homeowners face huge increases in mortgage costs
June 2nd 2008
The cost of mortgages has soared in the UK over the past six months by as much as nearly ?1,300 on a two-year loan. The price comparison service Moneyfacts.co.uk reports that the average rate of lending on a two-year fixed-rate deal now stands at a 10-year high.
Furthermore, banks have changed their deals as much as 19 times since January, causing considerable hardship especially for those homeowners hoping to secure two-year fixed-date loans when they are faced with remortgaging this year. According to the Council of Mortgage Lenders (CML), some 1.5 million homeowners took out fixed-rate deals in 2006, most of which were two-year deals, and the huge rise in costs in recent months could force many of these borrowers into less flexible and more expensive longer-term deals.
The total cost of a two-year, fixed-rate mortgage deal has risen, on average, from ?24,246 to ?25,517.
Leeds Building Society has made the biggest increases, with its combined interest payments and arrangement fee rising by ?3,228 over six months, which raises the total two-year cost from ?22,191 to ?25,419.
Also since January, Britannia Building Society has increased the repayment rate and fee for a two-year fixed deal by ?2,761 to ?26,845. Alliance & Leicester?s repayment rate and fee rose by ?2,993, meaning a total two-year cost of ?26,596 on a ?150,000 loan.
Halifax?s arrangement fee alone has risen a staggering ?1,000, from ?499 too ?1,499. It has made 19 changes to its mortgage deals since the start of the year, well above the average rage of 10 changes made by lenders overall.
Notwithstanding the lowering of the interest rate in the UK from 5.5% to 5% since January, lenders have failed to pass this on, arguing that they cannot offer better terms to their customers as the cost of mortgages has continued to rise despite the government?s efforts to reduce the cost of borrowing between banks. Such measures were implemented by the Bank of England in an attempt to lessen the effects of the credit crisis that has had such a debilitating impact on interbank financing and thus on High Street lenders and ultimately on consumers.
A clear example of this can be seen in the withdrawal by Woolwich, Barclay?s lending arm, of its two-year fixed loan due to the restriction of funding on the money markets.
?Borrowers continue to bear the brunt of the credit crunch that has beset the UK property market,? said Lawrence Smith of Decision Homebuyers. ?Faced with ever-higher borrowing rates and fees, some homeowners may simply not be able to afford the re-mortgaging costs. Rather than face the threat of defaulting on payments ? or, worse still, repossession ? they may find that the better option is to sell their property while prices still remain relatively robust.?
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