A&L hikes rates for low deposit borrowers

Alliance & Leicester, the UK’s ninth-largest mortgage lender, has increased interest rates for new customers with less than a 25% deposit.

Borrowers needing to raise between 76% and 90% of a property’s value will now be charged 6.49% on a two-year fixed-rate mortgage, rather than 5.74%.

The 0.75 percentage point increase adds £864 per annum to the cost of a typical £158,000 mortgage.

Rates on two-year tracker loans are also rising, from 5.99% to 6.39%, for those needing a higher loan-to-value ratio.

Since the beginning of the year, the lender has also been increasing fees for some customers, having replaced flat charges with fees based on a percentage of the loan.

As this week saw the mortgage market continue to shrink, with fewer borrowers able to secure attractive interest rates on loan-to-value ratios of over 75%, a number of dire warnings on the UK property market have been reported.

Iain Cornish, chairman of the Building Societies’ Association, is not convinced that the Bank of England’s £50 billion injection of cash will unfreeze mortgage lending and Michael Saunders, an economist at US bank Citigroup, believes the UK could follow the US into a serious housing market crash.

Meanwhile, Alastair Stewart of Dresdner Kleinwort has highlighted conditions in the UK housebuilding sector, where new sales fell 65% last month, as a result of waning confidence in the market and the mortgage famine.

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