Lloyds TSB raises mortgage rates as home loans plummet by 95% in ONE month

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Mortgage rates continued to climb today with Lloyds TSB becoming the latest lender to announce a hike in the cost of its home loans.

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Re: Lloyds TSB raises mortgage rates as home loans plummet by 95% in ONE month

Lloyds TSB raises mortgage rates as home loans plummet by 95% in ONE month


By Daily Mail Reporter
Last updated at 11:53 AM on 29th September 2008

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Mortgage rates continued to climb today with Lloyds TSB becoming the latest lender to announce a hike in the cost of its home loans.
The group, which also lends under its Cheltenham & Gloucester brand, is increasing the cost of its two- and three-year fixed rate mortgages by up to 0.26 per cent.
The move comes after several of the major lenders announced last week that they were raising their rates following a jump in wholesale funding costs due to the recent global financial turmoil.
Meanwhile, mortgage lending stalled during August, with advances diving to just 5 per cent of the previous month's total, figures showed today.

Mortgage rise: Signs of Lloyds TSB bank, right, and Halifax bank, part of HBOS banking group, are seen at branches in London
Net lending was only £143 million during the month, a fraction of July's sum of just under £3 billion and the lowest figure ever recorded by the Bank of England's statistics series which began in 1993.

The Bank did not offer an explanation for the slide, but it is almost certainly caused by the combination of falling house prices putting people off moving and the credit crunch making it hard for potential buyers to raise the mortgage they need.

Speculation over the Government's recent stamp duty announcement is also thought to have caused people to delay making a purchase during August until the future of the tax was clearer.

Britain's biggest mortgage lender, Halifax, which is being taken over by Lloyds TSB, announced at 8pm on Friday that it was raising the cost of its deals by up to 0.45 per cent.
It also said it would no longer offer 95 per cent mortgages through brokers, although it would continue to lend this amount through deals taken out directly with the group.
The changes leave Halifax's and Lloyds TSB's two-year fixed rate mortgage for someone borrowing 75 per cent of their home's value at almost the same level.

Dire times: The number of mortgages have plummeted as lenders pull back from the tumbling market
Lloyds TSB is offering a rate of 5.94 per cent with an arrangement fee of £995 for one of the loans, while Halifax is offering 5.95 per cent and a fee of £999.
Both groups blamed the changes on the recent jump in wholesale funding costs.
One of the key inter-bank borrowing rates, three-month Libor rate, which affects the pricing of tracker mortgages, has soared from a recent low of 5.7 per cent to nearly 6.28 per cent on Friday - the highest level since December last year, and the biggest differential to the Bank of England base rate since September 2007.
The recent rate increases by lenders 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 now that the major lenders have increased the cost of borrowing, others are expected to follow suit.

Commentators have also speculated that there could also be a renewed tightening in lending criteria.

The latest mortgage increases come as the Bank of England said mortgage lending stalled in August, with net lending, which strips out redemptions and repayments, falling to a record low of just £143 million, only 5 per cent of the sum lent during July.

A return to rising mortgage rates is bad news for the few potential buyers who still remain in the market, as it further restricts affordability, which remains stretched despite falling prices.
Howard Archer, chief UK and European economist at Global Insight, said: ‘Yet more very disturbing mortgage data that heighten concerns over the potential depth and length of the housing market correction.
‘The dire Bank of England mortgage data shows that housing market activity is being decimated by the highly damaging combination of stretched buyer affordability and tight lending practices.’
The figures come just days after a number of the UK’s biggest mortgage lenders, including Halifax, HSBC and Barclays’ lending arm the Woolwich, announced they were hiking their rates following a sharp jump in wholesale funding costs due to the recent global financial turmoil.
The move led commentators to predict that other lenders would quickly follow suit, ending the recent trend of falling rates, while their could also be a renewed tightening in lending criteria.
Paul Dales, UK economist at Capital Economics, said: ‘It is possible that the suspension of stamp duty for properties costing less than £175,000 at the start of September will support approvals in the coming months.
‘But we are not convinced. Why would households borrow to buy an asset that might soon be falling in price by around 25 per cent per year?’