Nationwide leads lenders in toughening rates

Nationwide leads lenders in toughening rates

Some of Britain's biggest mortgage lenders, led by Nationwide, raised their rates last night as the effects of the credit crunch deepened. In spite of expectations in the City that the Bank of England will cut interest rates again soon, banks are withdrawing their best mortgage offers because of the difficulties of obtaining funds.

From today, Nationwide is raising the cost of some of its base rate tracker mortgages by up to 0.57%. Britain's biggest building society said the change was in response to "significant increases" in the cost of funding and recent moves by other high street lenders.

First Direct, Cheltenham & Gloucester and Chelsea Building Society were among other lenders that yesterday withdrew or repriced their deals as the clampdown on lending gathered pace.

Figures issued by Britain's banks yesterday showed that the number of mortgages approved was down a third on a year ago.

In recent weeks, lenders have been rushing to tighten their lending, withdrawing deals with very little notice and in some cases shutting their doors to new business. Some smaller building societies have restricted lending to local people only.

The impact of the credit crunch on the home loans market was demonstrated by data showing that the total number of mortgage deals available to homebuyers had fallen from 15,600 last July to 5,700 now.

Nationwide's changes, which only affect new deals, will see an average of 0.2% added to the cost.....continued below

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of fixed-rate mortgages. The margin on tracker deals, which the society has already increased twice since last November, will also rise. The two-year tracker will cost 0.57% more from today, starting at a rate of 6.4% for loans of less than 75% of a property's value. The cost of the lifetime tracker will rise by 0.51% to 6.59%. The society is also withdrawing several fixed rate and tracker deals.

Yet its move came hours after Mervyn King, the Bank of England governor, said the tighter lending conditions were making interest rate cuts more likely - leading to speculation the base rate will be trimmed by a further 0.25% in a fortnight.

David Hollingworth at mortgage broker London & Country said Nationwide's tracker rate changes were "quite dramatic".

"The Nationwide repricing is symptomatic of what is happening across the market. The hike in tracker pricing clearly indicates they have a more limited appetite for lending volume and are focused on quality. The harsh reality for customers is that they face a volatile market with rates being withdrawn quickly and often with little notice - it is becoming a case of blink and you'll miss it."

The flow of money into the mortgage market is slowing, which means it is heading for a "correction" which may ultimately be good for the long-term health of the economy, said Louise Cuming at price comparison site moneysupermarket.com. She added: "Unfortunately it is the first-time buyer who will suffer now."

Nationwide's director of mortgages, Matthew Carter, said the society sympathised with anyone concerned about the availability of affordable mortgages, and added: "We continue to offer our customers a wide range of fixed and variable rate mortgages up to 95% loan-to-value with, as always, a focus on prudent and responsible lending rather than volume."