Libor keeps lending rates high

The scarcity of finance on international liquidity markets has made wholesale funding difficult to obtain and ensured UK mortgage rates remain high.

That is the view of Katie Tucker, technical manager at mortgage broker John Charcol, who finds the London Inter-Bank Offered Rate (Libor) remains at the six per cent mark, some 0.75 per cent above the Bank of England's base rate.

While the monetary policy committee (MPC) has cut the base rate by 50 basis points in recent months, in December and January to 5.25 per cent, this has not been reflected in commercial lending.

And, furthermore, those lenders with lower rates on offer are often inundated with demand and forced to curtail their offering, argues Ms Tucker.

"Because the synchronisation of exceptionally low two-year-old deals of around 4.29 per cent reverting to unnaturally high standard variable rates (SVR) of around 7.25 per cent, remortgagers are also scrambling to arrange affordable rates, and lenders have had to pull their best deals off the shelves, just to catch their breath," explained Ms Tucker.

Lenders, including the Co-Operative Bank and First Direct have removed products from the market, while Halifax and Nationwide have increased rates.

"There is also almost no notice of product closures, as lenders are reacting to the domino effect: others pack up shop, they suddenly find themselves market leading and have to pull down their shutters quick-smart," said Ms Tucker.

Borrowers with existing products are also at risk from volatile market conditions.

"It’s not just the borrowers on SVR discounts that should watch out, there are also 'variable' deals, normally flexible deals, and many offsets, that are simply variable' - i.e. the lender has the right to alter the rate at any time at their discretion; normally capped as high as SVR, around 7.25 per cent," continued Ms Tucker.

"Borrowers should check their Key Facts Illustrations (KFI) to verify whether their rate tracks Bank Rate, SVR, or nothing at all."

In response to these difficult market conditions, many lenders are offering deliberately uncompetitive products.

"Trackers are sky-high and purposefully out of reach," continued Ms Tucker.

For example, today alone Woolwich increased its lifetime trackers by 0.4 per cent - taking a two-year deal at 90 per cent loan-to-value to Bank rate plus 1.69 per cent giving a pay rate of 6.94 per cent.

Furthermore, Salt (Derbyshire Building Society) has withdrawn all trackers with no replacements as yet.