Barclays Increases the Cost of Fixed-Rate Deals

One of the largest UK lenders – Barclays – announced an increase of interest rates by 0.4% in spite of the fact that the Bank of England left its base rate unchanged. Other large UK lenders are expected to follow Barclays’ example in the next few weeks. In the past weeks, market interest rates have increased from 3.12% to 3.17%. Starting tomorrow, Barclays is pulling off its best-value deal of 3.99% for borrowers with a 40% deposit. Also, the bank is increasing the interest rate on 3- and 5-year mortgages by 0.4%. Barclays’ mortgage arm – Woolwich – blamed the decision on the increased cost of long-term wholesale borrowing. The majority of mortgage brokers believe that the bank’s move suggests that the market has reached its bottom and interest rates have no further to fall. They are urging homeowners to fix as soon as possible to protect themselves from rising interest rates, which are expected in the next few years. For instance, Melanie Bien, a representative of Savills Private Finance says that it was only a matter of time for lenders to start increasing their interest rates. Ray Boulger, of John Charcol claims that no one knows what banks and building societies will do next. He also said that the low level of approved mortgages is explained by the credit crunch: limited availability of funds makes banks cut lending.