Lenders hike cost of mortgages

The UK''s mainstream mortgage lenders have hiked the cost of their mortgage deals, in response to a spike in the cost of inter-bank borrowing.

The moves come as the money markets become strained following the takeover of HBOS and the recent failure of US investment banking giant Lehman Brothers.

Woolwich has raised rates on its two-year fixed rate offerings by 0.25 per cent, while its variable rate trackers are going up by 0.05 per cent.

Meanwhile, HSBC has increased the cost of its two, three and five-year fixes by 0.30 per cent, but has cut its fees by £300.

Its subsidiary First Direct has also added 0.125 per cent to the cost of its two-year fixed rate deals.

Andy Gray, head of mortgages at the Woolwich, said: "The cost of funding fixed rate mortgages has substantially increased over the past two weeks and as a result Woolwich has had to increase fixed rates as well as making small changes to lifetime tracker rates.

"We have made four rate cuts over the past two months, reducing rates on key mortgages by far more than this."