Mortgage rates rise in market turmoil

Abbey has raised its mortgage rates in response to the continuing turmoil on the money markets.

The bank, which is part of the Santander group, has increased the interest rates of its tracker mortgages for new customers by between 0.1% and 0.2%.

Abbey is the first High Street lender to act as a direct result of what it describes as the current “market pressure” and the move has been quickly followed by an announcement of interest rate increases from Standard Life.

The Governor of the Bank of England, Mervyn King, has already warned that both mortgage borrowers and businesses should now expect higher interest rates.

At the same time, Mr King is hopeful that if the current difficulties in the credit markets are managed properly, economic stability will not be threatened.

The Governor has, however, made it clear that the Bank of England will not bail out any lenders that have allowed themselves to become too exposed to US sub-prime borrowing.

He believes it would penalise the prudent banks, and could mistakenly encourage excess risk-taking in the future.

Abbey’s head of mortgages, Nici Audhlam-Gardiner, believes that “the current trends will be sustained over a significant period” and that other companies will follow Abbey’s move immediately.

Standard Life has already done so, citing “the current UK market volatility” as the reason for a review of its mortgage rates.

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