There has been a large increase in the cost of new fixed rate mortgages this week. Figures show that the interest rates for the average two-year deal have gone up by 0.16% to 4.9%.

The average five-year fixed- rate mortgage has risen by 0.21% since the start of the week to 5.82%. This rise is due to an increased cost of inter-bank borrowing, and is the biggest jump since June last year.

Analysts are now pointing out how quickly lenders increase their fixed rate mortgages when the costs rise but how slowly they decrease them when the costs fall.

The increases started a week ago with the Nationwide building society. Since then it has been followed by 13 other lenders, including the Britannia, Cheltenham & Gloucester, Abbey, Woolwich and the Yorkshire building society.

This means that typically the “best-buy” deals have gone up in cost by about 0.5%.

With the official bank rate at 0.5% and highly unlikely to go any lower, fixed rate deals have become popular again this year. They currently account for more than 60% of all new deals, as borrowers have sought to protect themselves against future increases in the cost of borrowing.

Earlier this week the Bank of England, in its latest report on lending trends, said lenders were also building a greater financial cushion into their loans, in case higher unemployment caused more borrowers to default.

As a point of interest, the ‘official’ best five-year deal at the moment is from the Post Office with an interest rate of 4.45% for a borrower who can put down a 40% deposit and pay a fee of £599. Of course, for many people it is no such thing as the 40% deposit and a large fee make it out of their reach.

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