Abbey increases mortgage rates

10 October 2008

0.5% rise will cancel out base rate cut

Abbey, the second biggest mortgage lender in the UK, has announced that it will be increasing interest rates on its tracker mortgages by 0.5%, cancelling out the 0.5% cut in interest rates made by the Bank of England on Wednesday.

The lender blamed the move on the current standstill in the money markets.

The three-month Libor, which specifies the cost to banks of interbank lending, has yet to decrease as a result of the cut in interest rates by the Bank of England.

The rates on tracker mortgages, which has become increasingly popular in recent months, are closely linked to the base rate. However, over recent days lenders have increased their rates and removed deals from the market to protect their profit margins.

Aaron Strutt, of broker Chase de Vere Mortgage Management, said: “Abbey has sent the message that mortgage rates depend on the money markets, not the base rate.

“Until interbank lending rates fall, banks will continue passing on the costs to borrowers in the form of higher rates,” he added.

A spokesman for Abbey said: “Following the announcement that the Bank of England has lowered the base rate by 0.50 percentage points, as of this Friday Abbey is maintaining rates on its range of trackers for new customers.

“This is a reflection that the short term variable funding costs have not reduced,” he added.

Some lenders – Bank of Scotland and Halifax, owned by HBOS, Royal Bank of Scotland, NatWest, Lloyds TSB and Woolwich – announced that they will be passing on the full rate cuts to their customers as of 1 November.

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