Barclays to raise the cost of mortgages at fixed rates

Barclays is set to increase the cost of fixed-rate mortgages despite the Bank of England leaving interest rates unchanged this month.

The move suggests that the mortgage market has bottomed out. Other lenders are expected to follow suit in the coming weeks.

The lender is pulling a market-leading 3.99 per cent four-year fixed-rate deal for borrowers with a 40 per cent deposit, from tomorrow. It is also increasing the costs of its three- and five-year fixes by up to 0.4 percentage points.

Woolwich, the mortgage arm of Barclays, blamed the decision on a rise in the cost of longer-term wholesale borrowing, which banks use to fund new mortgage lending. Market rates have increased from 3.12 per cent to 3.17 per cent in the past three weeks.

The bank is the first big lender to increase rates since the cost of borrowing hit a historically low level at the beginning of February. Brokers see this as evidence that mortgage rates have no further to fall and are urging homeowners to take out longer-term fixes to protect against rising interest rates over the next few years.

Melanie Bien, of Savills Private Finance, the mortgage broker, said: “It was only a matter of time before lenders starting edging up their longer-term fixes.

“Borrowers who have been trying to time the bottom of the market in terms of mortgage rates may be wise to secure a longer-term fix now before they edge up further.”

Mortgage lending remains at record lows as banks and building societies fear the effects of the worsening economy and the recession in the housing market.

Ray Boulger, of John Charcol, another broker, said: “It is difficult to predict what lenders will do next. One of the conseqeuences of the credit crunch is that banks need to limit new lending because there is only amount of funding available.”

Separate figures out yesterday show a fourfold rise the number of credit-worthy borrowers being rejected by lenders. About 8.8 per cent of applications that meet lenders’ criteria have been turned down this year, compared with 2.3 per cent in 2007, figures from Moneysupermarket.com, the price comparison website, show.