Why have UK lenders introduced a mortgage rate rise?

Despite the base rate remaining at an all time low a UK mortgage rate rise has been introduced by several mortgage providers.

Mortgage-holders are realising to their cost that standard variable rates are independent of Bank of England base rate changes, and can be increased as and when UK mortgage providers like. Many who reverted to lenders SVRs were aware that this was the case, but mistakenly believed that while the base rate remained low a mortgage rate rise would not happen.

So why are mortgage rates increasing? UK lenders who have imposed increases are claiming that funding costs have risen significantly and these costs must to be passed on to SVR mortgage-holders.

Several factors influence mortgage rates which include the cost of wholesale money market funding, the cost of funds from savers and the amount of capital that must be held by mortgage providers against loans issued. 2012 has also seen the LIBOR rise as the result of eurozone debt crisis and the FSA tighten up the levels of funding that must held by banks.

Banks and building societies are trying to strengthen themselves against the eurozone crisis and rebuild their finances after the UK's credit crisis. Lenders are being honest when they advise their funding costs have risen, however it remains true that perhaps they prefer to opt to maintain healthy profit margins and increase rates to cover their increased costs.

It is possible that this month's mortgage rate rise could be the first of many, therefore mortgage-holders should do what they can to protect themselves from further increases.

Contact Deal Direct and we will make a market comparison of lenders latest deals on offer to find the cheapest mortgage for you.