Mortgage rate rises gathering pace

The average rate for a two-year fixed rate mortgage is currently 6.66%, compared with 6.52% last Monday, the day the Bank made its announcement about the help it was making available to lenders.

Two-year variable deals have also increased slightly during the past seven days, rising to 6.65% from 6.64%, according to financial information group Moneyfacts.co.uk.

Not only have rates failed to come down in response to last week's £50 billion scheme to help tackle the problems caused by the credit crunch, but rate rises appear to be gathering pace.

When the credit crunch first struck lenders typically increased their rates in increments of 0.1% and 0.2%, but now rises of more than 0.5% are becoming commonplace.

On Friday Halifax and Cheltenham & Gloucester both announced they were increasing their rates by up to 0.6% for people who take out a mortgage through an intermediary, while Britannia Building Society hiked all of its fixed rate deals by up to 0.75%.

Lenders are also continuing to tighten their lending criteria, with Nationwide Building Society limiting lending to new customers with only a 5% deposit to just two of its products.

Sue Anderson, of the Council of Mortgage Lenders, said the injection of money into the market by the Bank of England was not an instant process and it would take time before it impacted the rates lenders charged. The Bank's intervention enables lenders to swap certain mortgage-backed securities for treasury bills, which they can then use as collateral to raise money from other banks.

But the value of the mortgage-backed securities has to be higher than the amount being borrowed from the Bank of England, to cover the risk involved, while banks will also have to pay a fee. Ms Anderson said: "It is a relatively complex scheme and it will just take time to work through."

As a result banks do not yet know exactly what price they will be paying for the funds, nor is it clear what appetite there will be among the banks to lend to each other with Treasury bills as collateral. Ms Anderson added that in the meantime the inter-bank lending rate Libor had failed to come down significantly in response to the Bank's move.