What low interest rates? Home loan costs rise as euro crisis sees banks hike mortgage rates

By Lauren Thompson 
Homeowners are facing a toxic combination of spiralling mortgage rates and plunging prices as the eurozone crisis grips the UK.
Banks are hiking the price of home loans as they are forced to pass on increases in the cost of money they use to fund deals.
In some cases, the total cost of a three-year deal has risen by almost £1,300 in the past week.

As mortgage rates rise, sellers are forced to slash prices
Experts fear rates will increase further with some banks potentially hiking the standard variable rates (SVR), currently paid by about four million homeowners.
The hike in mortgage rates may come as a surprise, as the base rate is not expected to increase for at least a year and a half.
As well as this, sellers are having to slash prices. Figures from estate agency Rightmove showed every region in the UK saw prices fall in October — the first time this has happened in three years.
Average asking prices dropped 3.1 per cent from October 9 to November 12, or £7,528 — so the average asking price is £232,144.
Independent housing economist Henry Pryor says: ‘The housing market is seizing up, with relatively few people actually buying or selling.
‘Consumers are very nervous about unemployment and the struggling economy, which means they don’t want to make big financial decisions.’

A plan to help first-time buyers

This week, the Government unveiled a series of measures to try to unblock the frozen housing market.
It plans to underwrite thousands of mortgages for new-build properties, allowing buyers to put down a 5 per cent deposit. It also earmarked £400 million to help build new homes. But these measures are likely to have little impact for some time — and in the meantime the housing market threatens to grind to  a standstill.
The soaring cost of funding mortgages has forced Halifax, Woolwich and Santander to recently increase their tracker and fixed-rate deals.
Woolwich, part of Barclays, increased its three-year fixed-rate for those with a 10 per cent deposit by 0.4 percentage points to 5.39 per cent. This would add £1,296 to the cost over three years for someone borrowing a typical £150,000.
ING Direct raised its discounted variable rate from 2.25 per cent to 2.5 per cent for someone with a deposit of 40 per cent. The means repayments of £673 a month, increase by £19 per month.
Halifax withdrew its tracker rate of 2.89 per cent and replaced it with one at 2.99 per cent, meaning repayments are now £8 a month higher at £711.
Santander has also increased its tracker rates by 0.24  percentage points and its fixed-rates by  0.15  percentage points.

And standard variable rates have been increased
Meanwhile, a number of smaller players have taken the unusual decision to increase their SVR. Handelsbanken, a Swedish bank with 100 UK branches, increased its SVR from 4.5 per cent to 4.75 per cent.
Bank of Scotland and TMB, both part of state-backed Lloyds Banking Group, increased their SVRs from 4.84 per cent to 4.95 per cent.  The money banks lend to borrowers for mortgages comes from a mixture of deposits held in savings accounts and borrowing from other banks on the investment markets.
Libor, the rate at which banks lend to each other and which typically sets the cost of tracker mortgages, has hit its highest level for two years.
This is because many banks have exposure to European banks’ debt and have become worried about lending to each other.
Meanwhile, swap rates, which typically set the cost of fixed rates, have also crept up This higher cost for banks of borrowing money is inevitably being passed on to their customers.
The average two-year tracker mortgage rose to 3.58 per cent last month from 3.39 per cent in September — its highest level since June 2010, according to analyst Moneyfacts.
This makes new mortgages around £15 a month more expensive than in September.
Meanwhile, the average two-year, fixed-rate mortgage for those with a 40 per cent deposit rose from 3.61 per cent in September to 3.91 per cent in October, adding £24 a month.
However, some experts fear that the rising cost of inter-bank lending means some banks or building societies may increase their SVRs sooner rather than later.
Around 40 per cent of homeowners are currently sitting on their lender’s SVR — some of which do not have enough equity to move elsewhere.
David Hollingsworth, of broker London & Country, says: ‘Banks can increase their SVRs anytime they like, and some may be forced to do so if their cost of borrowing gets much higher.’
Five-year swap rates over the past two years
This chart shows how swap rates - the rate at which banks lend to each other over fixed periods - have begun rising in the past month. In this case, it is is the five-year swap rate, which had been falling, helping to push the best five-year fixed rates to below 3.5 per cent.