Mortgage costs rise daily

The cost of an average mortgage is rising fast as the continued turmoil in the financial markets forces banks and building societies to review their rates on a daily basis.

According to research undertaken for The Daily Telegraph, the average rate on a two-year fixed-rate mortgage has risen from 6.15% to 6.29% in the space of 10 days.

The higher rate adds £156 a year to the cost of a £150,000 mortgage for a new borrower, who will now have to repay £11,916 a year, against £11,760.

When compared with the cost of a similar loan two years ago, the annual increase stands at £1,464.

Despite two cuts in the base rate since December, mortgage interest rates continue to rise because the credit squeeze has made it increasingly difficult for banks and building societies to secure funding.

Last week, lenders withdrew 297 mortgage deals in the space of four days, leaving just 5,488 on the market.

Meanwhile, the latest house price index from Nationwide shows that annual house price growth has fallen to 1.1%, its lowest level for 12 years.

Analysts, who earlier this year were predicting that UK property prices would remain flat during 2008, are now revising their forecasts towards a period of house price “correction”.

According to Ruth Lea, a leading City economist: “The credit crunch has well and truly hit the ordinary consumer looking to get a mortgage or run a business. The tighter terms in the financial markets are now affecting the man in the street.”

The gloomy outlook for the housing market is accompanied by a report form the US investment bank Lehman Brothers, which warns that Britain stands a one-third chance of falling into a recession.

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