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Credit crunch forces up mortgage rates

Monday, 17 September 2007 12:00 AM

The credit crunch in international financial markets has forced mortgage rates higher in the UK and will continue to do so over the coming months, a new report reveals.

Halifax, Standard Life and Abbey have all increased the base rate on their tracker mortgages by 0.1 per cent in the previous week, as part of a wider upward trend.

This comes despite a decision by the Bank of England to hold interest rates at 5.75 per cent on September 6th.

And now PropertySecrets.co.uk has warned of further instability to come.

"In the next two months I believe we'll see two things happen," comment Neil Lewis, chief executive of PropertySecrets.

"Sub-prime homeowners and sub-prime buy-to-let investors - typically those who ask for 'nothing down' investments - will see their mortgage rates rise in the UK.

"Quality investors - i.e. those with a good credit history, a job or provable income - will continue to get good credit and not see much change."

In response PropertySecrets advises investors to concentrate their funds in urban areas, where economic prospects are good, and to avoid 'cheap' sub-prime property.

In the longer term PropertySecrets predicts both the Bank of England base rate and inter-bank interest rates will fall, dividing the market in two.

"Banks will then fall into two camps - those that win and those that lose from the current crunch.

"The losers will put up their mortgage rates - the winners will not. And therefore mortgage share will shift from the losers to the winners.

"Some weak lenders will go out of business," concluded Mr Lewis.

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