The Nationwide and Barclays bank have today announced an imminent increase in their mortgage rates as the upward spiral in the sector continues to gather pace. Nationwide will be increasing over 30% of its mortgage deals by up to 0.86% which is on top of the recently announced increases. Barclays on the other hand is moving its fixed mortgage rate up by around 0.7% with many homeowners and potential investors unsure as to why the trend is moving higher.

At a time when UK base rates are rock bottom, money market rates are fairly steady and UK mortgage demand has not yet shown real recovery why are UK mortgage lenders increasing the cost of funding?

Many people believe that UK mortgage lenders are trying to improve their profit margins in readiness for a possible recovery in the UK property market towards the end of 2009. While money market lending rates are nowhere near the 0.5% base rate figure they are substantially less than the new 5% mortgage rates on offer. This leaves significant profit margin for a whole host of UK mortgage lenders at a time when the sector needs cheap liquidity more than ever. It is inevitable that other large mortgage lenders in the UK will follow the likes of Nationwide and Barclays in the short to medium term.

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