June 9, 2008 | posted by Pam Atherton in Banking, House prices, Loans, Mortgages |

Despite base rate having been held at 5 per cent last week, mortgage lenders continue to hike lending rates.

On Friday, Bradford & Bingley increased rates for new borrowers by between 0.05 per cent and 0.55 per cent, saying that it was forced to do so because it had become more expensive to raise funds on the money markets.

As the largest buy-to-let lender in the UK, this does not bode well for cash-strapped landlords looking to remortgage. All Bradford & Bingley’s new fixed rate buy-to-let deals have increased by 0.55 per cent, and all its new variable rate mortgages have jumped by 0.45 per cent.

Higher borrowing rates make it increasingly difficult for landlords to arrange new finance on their properties because lenders are demanding that rental come covers 125 per cent of their monthly mortgage payments.

During the credit boom, some buy-to-let lenders relaxed the ‘rental-income-to-mortgage criteria,’ allowing landlords to borrow with only 100 per cent rental cover.

This is dangerous, as it leaves no leeway for the cost of voids, difficult tenants, agency fees, repair and maintenance and other rental costs.

Bradford & Bingley shocked the market last week by announcing a 52 per cent jump in mortgage arrears in the first four months of 2008 and £16m in mortgage fraud. The fear is that more expensive buy-to-let mortgages will simply exacerbate the problem, creating a downward spiral of mortgage arrears and repossessions.

Elsewhere, Nationwide last week raised the price of its new fixed rate mortgage deals by up to 0.3 per cent.

As from today, Abbey is hiking rates on its 85 per cent loan-to-value mortgages and on its 5-year fixed rate range from 0.07 per cent and 0.26 per cent.

But Abbey insists it still offers some of the most competitive deals on the market for those with a deposit, or equity in their property, of at least 30 per cent.

Its best rates at 70 per cent LTV are a 2-year tracker at 5.97 per cent and a 3-year fix at 5.84 per cent. At 75 per cent LTV, it is offering 2 and 3 year fixed rate deals at 6.14 per cent.