Major lenders hike mortgage rates

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HSBC, Barclays's lending arm the Woolwich and internet and telephone bank First Direct all said they are passing on recent increases in the cost of borrowing to customers.

The move brings to an end the most prolonged period of falling mortgage rates since the credit crunch first struck.

Rates had been steadily falling since July, helping push the average cost of a two-year fixed-rate mortgage down to its pre-credit crunch level, as lenders once again competed for business.

But wholesale funding costs have soared during the past week following the recent financial turmoil.

Two-year swap rates, upon which fixed rate deals are based, have increased from 5.18% last week to 5.56% on Thursday.

At the same time the three-month Libor rate, which affects the pricing of tracker mortgages, has soared from a recent low of 5.7% to nearly 6.28% - the highest level since December last year, and the biggest differential to the Bank of England base rate since September.

Last week specialist lender GE Money, which lends under the First National and iGroup brands, announced rises of up to 1.6%, while smaller players, such as Yorkshire Building Society, have also increased the cost of some of their deals.

Now that some of the major players have also increased their rates, other lenders are expected to follow suit in the coming days.

But on a brighter note, Britannia announced it had cut the cost of its two and 10-year fixed rate mortgages and some of its tracker products by up to 0.3%.