Some leading banks have come in for criticism after they have sharply increased their fixed rate mortgages following the recent base rate rise. Last week base rates went up by 0.25% to 5.75%, but some lenders have announced rises of up to 0.4% in their fixed rates, and more are likely to follow suit as they all try to boost their profits.

From Thursday next week (19 July) Northern Rock is to increase its fixed rates by that 0.4%, but has not yet announced exactly which products will be affected. Abbey’s increase has been 0.3% on its 100% mortgages and on some fixed rates. Halifax is to announce its new fixed rate deals very soon.

Mortgage experts are wondering why fixed rates need to be put up at all as the cost of money to lenders has barely changed in the past month, and most of them already put up fixed rates in June – before the latest base rate rise. A change in the base rate does not necessarily directly impact lenders’ money rates as they get their money on international money markets where traders borrow and lend money based on where they forecast interest rates will move to in the future. The rates charged are known as swap rates. On this money, building societies and banks add their own mark-up and then use it to lend to homeowners.

On Monday 9 July the two-year swap rate was at 6.29%. It was 6.22% on 27 June. That should mean that even the most pessimistic figure to be added to a fixed rate should be 0.07% plus a mark-up. But a rise of 0.4%? It hardly seems justifiable, but whom do they have to justify it to?

A 0.4% increase on a mortgage of £130,000 means an extra £43 would need to be found for monthly repayments on an interest-only mortgage.

It seems that fixed rates are being charged at a premium to apparently give people peace of mind for a couple of years.

Alliance & Leicester has managed to only increase its fixed rates by 0.2%, with many increased by just 0.1%. Its 5.79% fixed rate until August 2009, with a £999 fee, has only risen by 0.1% from 5.69%. An A&L spokesman said that they had been able to buy money at lower rates on the money markets.