Now families face £1,300 a year mortgage increase

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The Nationwide has announced a fifth mortgage increase with other lenders now expected to follow suit

Families face a £1,300 annual increase in their mortgage payments after the country's biggest building society announced a rise in its lending rates.

The Nationwide will today hit homeowners with its fifth increase in mortgage rates since the start of the year.

Experts said homowners are paying the price for the global credit crunch, which is squeezing the amount banks and building societies have to lend.

On January 1, a typical repayment mortgage of £158,000 would have cost £968 a month with a Nationwide two-year tracker at 5.48 per cent.

Today, the rate will rise by a further 0.57 of a percentage point, to 6.6 per cent.

The increases since the start of the year adds an extra £109 a month, or £1,308 a year to mortgage payments.

All Nationwide's fixed-rate deals will increase by 0.2 of a percentage point from today.

Traditionally, building societies have managed to offer lower rates to their customers because they do not have to pay dividends to shareholders, so the Nationwide's increases are a warning to all of Britain's 11.8million mortgage holders.

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The Nationwide's increases serve as a warning to Britain's 11.8 million home owners

Yesterday, figures confirmed the impact worsening economic conditions are having on those looking for a loan.

The number taking out a mortgage to buy a home has plunged by a third in the last year.

In February, 43,870 managed to take one out, compared with 65,637 in the same month last year, according to the British Bankers' Association.

Other figures have shown that more than 10,000 mortgage deals have been axed since last July - before the credit crunch began hitting lenders lenders.

Another 139 deals were pulled in 24 hours ending yesterday. The list is growing rapidly of lenders pulling the best deals, raising their rates, insisting on bigger deposits or simply refusing to lend.

The latest include building societies such as the Chelsea, Stroud & Swindon, Nottingham, Principality and the Teachers.

Some are resorting to extreme measures to curb the demand for mortgages from buyers who used to be able to take their pick.

Measures include lending only to those who live within a 30 mile radius of a building society, or lending only to teachers.

Experts said the pace of the disappearing deals is "unprecedented", with lenders often giving less than one hour's notice.

The latest news will pile further pressure onto the Bank of England to take urgent measures to ease the lenders' funding crisis.

One of the biggest worries for homeowners is that the fall in house prices will gather pace if people cannot get a mortgage.

Liberal Democrat treasury spokesman Vince Cable said: "There is now a fatal combination of people who are unable to borrow and banks who are unwilling to lend.

"The freezing of the housing market is only likely to further exacerbate the current fall in house prices.

"Bank lending is now so restrictive there is no guarantee this will make houses any more affordable, particularly for first time buyers."

This strategy marks a dramatic change by the country's lending giants, who have been badly hit by the credit crunch.

Yesterday LIBOR - the rate at which banks lend money to each other - climbed to its highest level this year at 6.003.

In a sign that the Bank of England is struggling to control mortgage rates, its base rate is only 5.25 per cent, far below the LIBOR rate.

With such high rates, building societies such as the Nationwide are finding it too expensive to borrow money.

A Nationwide spokesman said: "We are looking to stem the flow of applications. The costs of funding mortgages have risen significantly and so we want to focus on the quality of the lending that we do rather than just the quantity. We think it is a prudent approach."

 

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