Government-backed Lenders Raise Mortgage Interest Rates

According to an article published in the Sunday Times, most of the British taxpayer-owned banks increased mortgage interest rates and toughened lending criteria last week. Royal Bank of Scotland, RBS, has raised the deposit for its best-buy mortgage deal – 2-year tracker offered at a pay rate of 2.89%, a fee of £1,499 and no penalties for switching - to 25%, up from 20%. Meanwhile, Northern Rock, which has recently claimed that it is committed to boost mortgage lending, increased the interest rates on its popular 5-year fixed remortgage deal (to 5.39%, up from 4.99%) and on a 5-year fixed mortgage deal (to 5.29%, up from 4.99%). Moreover, the lender withdrew its market leading mortgage deals available at 4.39% and 4.79% (3- and 4-year fixes) through mortgage brokers. In the opinion of mortgage brokers and financial organizations, such a sudden rise in mortgage interest rates means that government-based banks are uncertain of the housing market recovery. In fact, many banks confirmed that they expect UK house prices to decline next year. According to the report published by Nationwide Building Society last week, house prices in the UK, which have shown growth and stability in the past months, should fall next year as in 2010 the growing rate of unemployment will affect buyers’ demand – the driving force behind the current house price rises. Although the forecast of Halifax for house prices in 2010 suggests that property values will remain unchanged next year, the latest report by Rightmove showed that house prices have already started to decline. As we have reported last week, UK house prices experienced a 1.6% fall in November, signaling that property market weakness is back. At the moment, UK house prices are 13% below their peak level in 2007, leaving an average house priced at £162,038.