Mortgage rates set to climb

It has taken six months for the interest rate that banks pay to borrow from each other to fall from 6% to 5.7%. But following the recent turmoil in financial markets, it has taken less than a week for those costs to be completely reversed. In just four days, the London Interbank Offered Rate (LIBOR) has climbed back above 6%.

Since March, the fall in LIBOR has benefitted homeowners as lenders passed on their cheaper borrowing costs. Six months ago the typical Standard Variable Rate (SVR) was 6.74%, when LIBOR was 6%. Six months on, LIBOR rates fell to 5.7%, with typical SVRs dropping to around 6.49%.

However, with LIBOR rates on the rise, it can only be a matter of days before the cost of mortgages increases to reflect this.

David Kuo, Head of Personal Finance at money website Fool.co.uk, says: "LIBOR is a better guide to the costs of fixed-rate and Standard Variable-Rate mortgages than the Bank of England base rate. However, mortgage rates currently on offer do not adequately account for the recent surge in LIBOR.

"We therefore urge anyone whose fixed-rate mortgage deal is about to come to an end to apply for a new one without delay. Most lenders will let you to arrange a new mortgage up to six months before you need it.