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Will UK mortgages become more expensive in the short term?

The surprising change of strategy by the Nationwide, which has introduced a new standard mortgage rate which is significantly higher than its existing mortgage rate, has the potential to cause a ripple effect throughout the UK mortgage market. Nationwide has for some time been well regarded as offering some of the more competitive mortgage rates in the UK although the new rate, which has no guarantees and no direct relationship with UK base rates, has turned the industry on its head.

It will be interesting to see how competitors react to the move, at a time when UK banks are struggling to retain their profit levels and are under intense pressure from shareholders. There is no way that other mortgage companies will give up significant profit margin, when they can move their rates higher and still undercut the Nationwide. This move is sure to impact upon the short to medium term outlook for the UK property market at a time when the UK government was banking on a substantial recovery towards the end of 2009 and into 2010.

It is highly likely that the likes of Lloyds Bank, HBOS, Royal Bank of Scotland and Northern Rock will be asked to keep their mortgage rates lower (by the government) but with business still tight and the government promising an "arms length" strategy on the banks in question, it will be difficult to keep rates too low.

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