Moneyfacts: Lehman bankruptcy will affect UK mortgage market

Date:Tuesday 16th September 2008

The cost of mortgage borrowing is likely to rise in the wake of the demise of US investment bank Lehman Brothers, it has been claimed.

Finance website Moneyfacts said that mortgage rates had fallen to pre-credit crunch levels in the last two months and increased liquidity in the markets had allowed lenders to pass the benefits on to borrowers.

But now that Lehman has declared bankruptcy, Moneyfacts said, banks may become "wary" about lending to each other and the increase in cost is likely to result in higher mortgage rates.

"The longer the banks face an increased cost of borrowing, the more likely it is that UK mortgage customers will be hit," it said in a statement.

But it noted that last time the markets "seized up", lenders used savings to help finance mortgages.

The price of a prime country house fell by four per cent during 2008's third quarter, according to property consultancy Knight Frank.

It said it was the "most severe quarterly price fall" since the start of the Knight Frank index in 1995.