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Abbey hikes interest rates

Thursday, 29 May 2008 7:07 AM

Abbey has reversed cuts made to interest rates on its mortgage products made just two weeks ago.

The lender will now raise rates on new fixed-rate deals by between 0.15 per cent and 0.56 per cent from today.

The move comes in response to an increase in the cost of wholesale funding, with the London Interbank Offered Rate (Libor) remaining well ahead of the Bank of England's base rate of interest.

For Abbey this marks a sharp reversal. On May 16th the high street lender cut flexible and tracker rates by 0.05 per cent, while also cutting some fixed-rate deals by up to 0.17 per cent.

At present the Bank of England's base rate of interest sits at five per cent, following three cuts in the past six months, while the Libor has persistently maintained levels around six per cent.

News from Abbey accompanies an announcement from Woolwich stating it is putting up the cost of mortgages sold through brokers.

The lender - which operates as the mortgage arm of Barclays - will increase rates on such products by up to 0.3 per cent.

This caps a bad week for the mortgage industry as a whole.

Today research from Nationwide finds house prices have fall at the fastest rate for 17-years, while the British Bankers' Association finds the number of mortgages issued during April remains at a severely depressed level.

Commenting on the increase in interest rates Louise Cuming, head of mortgages at MoneySupermarket.com, said: "While swap rates have risen by around half a per cent in the past month which could justify this hike, Abbey is only adding to confusion and volatility by reducing rates on fixed deals last week only to raise them again this week.

"When providers act with such disregard for consumer confidence, they aggravate the situation by driving more homeowners to a 'wait and see' approach.

"Borrowers need to be regaining trust in providers and the housing market as a whole, or we will face the unwanted prospect of further market stagnation."

Chris O'Toole

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