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Euro fears to push up mortgage rates

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The worsening eurozone conditions could increase the cost of borrowing for banks and see lenders raise the price of variable rate mortgages in the coming weeks, says John Charcol.

The price of fixed-rate mortgages has been declining over the past six months due to falling swap rates, which lenders use to fund fixed-rate lending, and lenders have slashed their prices in a bid to attract new business.

However, variable-rate lending is funded through savings deposits or monies borrowed from other lenders, the rate of which is determined by Libor.

As at September 27, three-month Libor was 0.93 per cent. This has steadily increased over the past two months, from 0.83 per cent on July 27 and 0.88 per cent on August 26.

John Charcol senior technical manager Ray Boulger says: “Over the next month or so, I expect to see more lenders putting their tracker rates up to reflect the fact that the conditions in the eurozone banking markets are continuing to deteriorate.

“This makes it harder for lenders to get short-term funding and what they can get, they will probably have to pay a bit more for.”

London & Country head of communications David Hollingworth says: “Libor has been gradually creeping up recently, which could lead lenders to rethink their tracker pricing.”

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