Published at 14:07, Friday, 22 June 2012

A recent spate of rate hikes on new mortgages took a pause last month, but rates on the riskiest deals continued to increase, Bank of England figures show.

The typical rate being offered to customers for a two-year fixed rate deal with a 25 per cent deposit held steady at 3.66 per cent in May, a figure unchanged from the previous month, following increases every month since October last year.

But the rate for two-year fixed deals with just a 10 per cent deposit increased by 25 percentage points from April to 6.04 per cent, the highest rate since January 2011 and a figure which has also been steadily rising since last autumn.

Analysts warned that the pause is unlikely to last for long as increased costs faced by banks amid the ongoing eurozone crisis have not yet fully filtered down to mortgage customers.

Vicky Redwood, chief UK economist at Capital Economics, said: “With banks yet to pass on fully their rises in funding costs, this pause is only likely to be temporary.”

Three years of record interest rates have enabled lenders to offer some of their cheapest ever deals, and Halifax found that average mortgage payments for new borrowers stood at 27 per cent of disposable earnings in the fourth quarter of 2011, the most affordable level in 14 years. But this year has seen lenders tighten their borrowing criteria, causing a drop in the proportion of approvals, and raise their rates for both new and existing borrowers, blaming the weak economy and the increased cost of funding a mortgage.

Britain’s biggest mortgage lender, Halifax, and Yorkshire Building Society increased some of their rates for new borrowers last month.

Halifax was one of several lenders which introduced mortgage rate hikes for existing customers from the start of last month, affecting more than one million people in total.

Published by http://www.cumberlandnews.co.uk