Abbey will raise rates on tracker mortgages

The effects of the credit crunch started to trickle through to the prime end of the consumer mortgage market yesterday, as a handful of the UK's largest lenders announced plans to raise the interest rates on their tracker mortgages for new customers.

Abbey, the UK's third-largest lender, said it was raising the rates on 12 of its tracker mortgages by between 0.1 and 0.2 percentage points.

Meanwhile, Halifax, the UK's largest lender, said it would be repricing a number of its mortgages today – and is expected to follow Abbey's lead. Standard Life bank also raised some of its rates.

Melanie Bien, a director at the independent mortgage broker Savills Private Finance, said that, with two of the biggest lenders raising their rates, it was possible that other smaller lenders would now follow suit. However, she pointed out that, although tracker rates were rising, fixed-rate mortgages were in fact being repriced downwards, as swap rates had fallen sharply over the past few days.

Tracker rates have been repriced on the back of the sharp rise in Libor – the rate at which banks lend to each other – over the past few weeks.

Three-month Libor is currently hovering around nine-year highs of about 6.9 per cent – more than a percentage point above the Bank of England base rate.

Swap rates, however, which determine the price of fixed rate mortgages, have been falling. Ms Bien said two-year swaps had now come back under 6 per cent, after hitting 6.11 per cent just five days ago.

Katie Tucker, of the mortgage broker John Charcol, said that the sharp rise in Libor was one reason swap rates have been falling. "Along with reduced inflation and the slow effect of previous rate rises, the credit crunch is another reason why the bank rate may have reached its peak," she said.

"It would make little sense for the Monetary Policy Committee to increase the cost of borrowing further at this stage."

Abbey acknowledged that rising Libor had played a part in its decision to raise the price of its trackers, but added that it was one of a number of factors. It stressed that only new customers would be affected. Existing tracker customers will only see their rates change if the Bank of England base rate moves.

An Abbey spokesperson said: "We often reprice our tracker mortgages and take into account many factors, such as competitor positioning and market pricing. This is only one of many competitive mortgage ranges that we offer to customers."