Charcol: Cost of mortgages continues to rise

Wednesday, 19 March 2008 12:00 AM

Analysts at mortgage broker John Charcol have found the cost of borrowing has continued to rise, despite attempts from the Bank of England to ease concerns arising from the credit crunch.

Yesterday the Bank offered £5 billion in loans to the money markets - an offer that was immediately five times oversubscribed - in an attempt to ease liquidity concerns.

This move followed two cuts in the base rate of interested, in December and February - bringing the rate down to 5.25 per cent.

However, these moves have failed to ease concerns in the property market, especially given government inaction in recent weeks.

"Monday's turmoil on the stock market, following a budget with disappointing provision for homeowners or first-time buyers, in a climate where precious few remaining lenders can accommodate high risk mortgages such as those with no deposit, bad credit, or new build properties, is a worry for many," explained Katie Tucker, of John Charcol.

As a result of the turmoil first-time buyers are being encouraged to save deposits of around ten per cent before deciding on a property.

Charcol recommends it may also be financially beneficial to wait, in order to ensure values have hit rock bottom before making an offer.

"First-timers should reconsider very carefully if this is the right time to buy, given that properties in many areas are expected to lose value," continued Ms Tucker.

"Unless household income is strong enough for a good amount of capital to be paid off monthly, there is a risk of falling into negative equity if buying without a decent deposit."

At the heart of the concerns is a consensus among banks not to lend to each other as they wait to see which organisations will be adversely affected by the credit crunch.

The three-month LIBOR - the rate as which banks lend to each other - stands at 5.97 per cent - some 0.4 per cent more than at the start of February, despite the Bank's efforts.

As a result rates have been rising across the market, with Mortgage Express increasing rates by an extraordinary 1.15 per cent on some ranges and Scottish Widows pulling out of most lending types, in order to cope with demand.

With inflation also at a nine month high, it may be a best time to hold fire on a property purchase.

"For borrowers, this means that whilst more interest rate cuts are needed, to stimulate growth in the economy, inflation has to be held down so we may have to wait at least until May before mortgage rates are reduced again," concluded Ms Tucker.

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