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24 September 2007
Although the Abbey has offered some good news to UK consumers in the form of its five percent cash back credit card deal, the bank has also dealt a blow to borrowers recently, after announcing that it is putting up its interest rates on mortgage loans.
According to reports the decision to up its interest rates on mortgage loans results from the recent turmoil that has hit the financial markets in the UK, spreading across from the United States.
Reports state that 'market pressures' have forced the bank to raise the interest rates on its tracker mortgages by between 0.1% and 0.2%. Several other banks have since done the same, and the governor of the Bank of England, Mervyn King, has warned consumers that they will now have to expect higher borrowing rates and increased repayments in line with the higher rates.
He did add that it was still too early to predict the extent to which credit conditions on financial products such as mortgage loans would be affected by the situation.
With regards to the rise in interest rates on mortgage loans one Abbey official stated: "These changes reflect moves in the market that have been experienced. We expect that these current trends will be sustained over a significant period and that other companies will follow immediately."
Standard Life, which also raised its mortgage loan interest rates, added: "We have seen significant changes to the money markets in the last few months and this has increased the cost of borrowing internationally."
Many banks have had to take action with regards to mortgage loans following huge losses that have resulted from the credit crunch that was sparked in the United States. Increased inter-bank lending rates coupled with increased cautions from lenders has meant that those looking to take out a mortgage loan could well find themselves paying well over the base rate in some cases, particularly of their credit history is less than perfect.
Some lenders have withdrawn some of their sub-prime mortgage loans from the market altogether, and others – such as Northern Rock – have announced significant increases on mortgage loans for the sub-prime sector.
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