Business

Mortgage rates to be volatile, say brokers

Houses
Image caption A number of lenders have made changes to their mortgage rates in recent days

Brokers are telling new borrowers to expect mortgage rates to fluctuate in the coming months, owing to economic uncertainty.

A number of major lenders have increased the cost of a mortgage for new borrowers in recent days.

Brokers suggest that the increased activity is likely to be followed by an "ebb and flow" in the mortgage market in the first half of 2012.

Lenders are concerned about the cost of funds to lend in the current climate.

Uncertainty in the eurozone means that they do not want to overstretch themselves with lending, when there is a chance that accessing funds could become more expensive.

'Shop around'

In recent days, some of the major lenders have increased their mortgage rates by up to 0.3 percentage points.

Others have changed the loan-to-value bands, so borrowers might not always get a cheaper deal by offering a larger deposit.

"It really does pay to shop around at the moment if you are looking for a mortgage as some lenders are much more expensive than others," said Aaron Strutt, of Trinity Financial.

Lenders tend to move as a herd, as they do not wish to be inundated with mortgage applications if they suddenly become cheaper than their rivals.

Andrew Montlake, of mortgage broker Coreco, said: "We are going to see a period in which the Bank rate remains stable, so lenders will manage the business they want by increasing or decreasing their rates."

A few lenders have reduced mortgage rates for new borrowers in recent days.

He predicted that this volatility would continue for the first half of the year at least, until there was a clearer picture in the eurozone crisis.

Long-term costs for lenders have risen, he said, owing to uncertainty as a result of the crisis.

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