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Abbey raises mortgage rates a day before predicted Bank of England cut

Wednesday 5 November 2008

By Becca Talbot becca.talbot@consumerchoices.co.uk

Abbey has been branded “cynical” after increasing its borrowing rates the day before a predicted Bank of England base rate cut.

This morning, Britain’s third largest mortgage lender*, Abbey increased the rates for its two- and three-year tracker mortgages by 0.5% for all new customers, a day before an expected Bank of England (BoE) base rate cut.

Until close of business yesterday, Abbey’s two-year tracker mortgage rate stood at 5.79%, and a three-year tracker at 5.69%. Both of these were increased by 0.5% this morning, making them 6.29% and 6.19% respectively.

Doug Taylor, a mortgage expert at Which? magazine said: “The decision to increase the rate in advance of an expected future cut is likely to be viewed as cynical.”

This is the second time Abbey has failed to pass on the base rate cut this quarter. The move made this morning will effectively cancel out any benefit of the base rate being cut by 0.5% from its current level of 4.5%.

Speaking last night, a spokesman for Abbey said: “We have market leading two, three and five-year fixed rate mortgages which have been the majority of our new business. Recent moves by competitors increasing tracker rates and withdrawing products, has resulted in today’s decision.”

“Despite difficult market conditions, Abbey has continued to provide competitive mortgage deals for all our customers across our range,” continued the Abbey spokesman. It is thought that interest rates will be cut by at least 0.5% tomorrow, with some economists predicting a reduction as large as 1%.

On Friday last week (31 October), Abbey reduced fixed rates by up to 0.35% on its two, three and five-year fixed rate mortgages.

Abbey is the latest in a long line of lenders to raise rates, following on from Halifax and Nationwide both increasing the costs of some of their tracker products.

Halifax (www.halifax.co.uk) has withdrawn its two and three-year trackers, and increased the rate of its five-year tracker by 0.5%.

And building society Nationwide (www.nationwide.co.uk) has increased the rate of its fixed two-year tracker mortgage to 5.98%.

Northern Rock (www.northernrock.co.uk) has also raised the rate of its two-year tracker by 0.15%.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “The raise in Abbey’s rates is disappointing for both first time buyers and homeowners looking to remortgage their property, as it means options are becoming increasingly limited.”

He continued: “With the BoE trying to kick start Britain’s economy and make lending cheaper, Abbey’s move is a let down.”

* Council of Mortgage Lenders (www.cml.org.uk) statistics for total mortgages outstanding at end of 2007

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