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Mortgage lenders start axing deals

Homeowners who want a fixed rate mortgage were on Wednesday advised to move fast as lenders began pulling their best deals following rising funding costs.

Nearly a dozen lenders have either withdrawn or increased some of their fixed rate mortgages during the past week, including first direct, which has pulled its best buy two and five-year fixed rate products.

Other lenders who have hiked at least some of their mortgage rates include Lloyds TSB and Cheltenham & Gloucester, Halifax, Northern Rock, Skipton Building Society and the Co-operative Bank and Britannia, with some groups increasing their rates by up to 0.7 per cent.

The latest round of re-pricing has been sparked by a steep increase in swap rates, upon which fixed rate deals are partially based.

Since the beginning of the year two-year swap rates have risen from 1.53 per cent to 1.79 per cent, while five-year ones have jumped from 2.66 per cent to 2.93 per cent, amid speculation that the Bank of England's Monetary Policy Committee will have to raise interest rates sooner than previously expected because of high inflation.

The latest figures show that the Consumer Prices Index rose by more than expected during December, increasing to 3.7 per cent, up from 3.3 per cent in November, and well above the Bank's 2 per cent target.

But it is worth remembering that although many economists now expect interest rates to start rising sooner than previously expected because of inflationary pressures, they are still set to remain low by historic standards.

Copyright © Press Association 2011

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