Libor jump threat to mortgage rates

The three month Libor, a key inter-bank lending rate, has jumped to 5.98% from 5.7% as global financial turmoil continues to take its toll.

This will not only affect tracker mortgages, but also indicates a renewed reluctance among banks to lend to each other. Recent improvement in the mortgage market will thus be short-lived.

Lloyds TSB's takeover of Halifax Bank of Scotland is also expected to reduce competition over the long term.

Halifax is understood to be planning to pull some of its mortgage products at the end of this week, and it is not expected to relaunch deals to replace them until the end of next week.

The recent trend among lenders to cut their fixed rate deals is also likely to come to an end, despite a recent fall in the swap rates upon which the deals are based.

Ray Boulger, senior technical manager at John Charcol, said: "It is likely that we will see some of the keener trackers being repriced."

He added that as interest rates fall over the coming year, the spread is likely to widen between the cost of funds and the rates charged to consumers."

Copyright © PA Business 2008

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