Northern Rock raises mortgage rates

Northern Rock, the state-owned bank, on Wednesday defied government calls for cheaper mortgages as it increased the rates of its most competitive home loans just 10 days after reducing them.

HSBC also withdrew one of its popular mortgage rates – a tracker priced 0.99 per cent above the base rate for the lifetime of the loan – as it said business volumes were three to four times above normal levels.

Northern Rock raised the cost of some of its new fixed-rate mortgages by up to 0.3 of a percentage point. Its lowest rate, which is fixed for just one year, was increased from 3.99 per cent to 4.19 per cent.

Mortgage brokers believed the bank had priced its new rates too competitively, resulting in a flood of new business in recent days.

“I suspect the reason is that they came in so cheaply,” said Melanie Bien at Savills Private Finance, the mortgage broker. “Northern Rock would have had a certain amount of money available at this low rate, which has now been used up.”

Northern Rock said it wanted to continue lending to new borrowers but at more modest levels.

“We will adjust our competitive standing at different times to attract or moderate business flows,” said a spokesman.

Northern Rock and HSBC had offered some of the most competitive rates on the market.

Woolwich is still offering a fixed rate of 3.99 per cent for one year but most lenders’ rates start from between 4.3 per cent and 4.5 per cent.

The changes to Northern Rock’s range will be a blow for the government at a time when it is pushing high-street lenders to pass on recent base rate cuts to customers.

Woolwich and Abbey on Wednesday made some further cuts to their mortgage rates. Woolwich reduced the cost of its fixed rates by up to 0.7 of a point.

Abbey cut its lower loan-to-value five-year fixed rates by up to 0.45 of a point.