The cost of two-year fixed rate mortgages has hit an all-time high in a decade, as leading home insurance providers Nationwide and Woolwich raise their rates, forcing buyers to rethink borrowing money to purchase a home. Substantial rises in money market rates, combined with increasing competitor activity, has made it imperative to vastly increase mortgage rates among many of the mortgage providers.

As the credit crunch does its worst, Nationwide Building Society has increased its mortgage rates by 0.5%, while fellow mortgage giant Woolwich, now owned by Barclays, applied a price hike of its own, in addition to abolishing its entire two-year fixed rate range, which is the most popular mortgage for borrowers. As it has become increasingly difficult to fund costs in light of the persisting mortgage crunch, Woolwich have seen no other choice but to implement this action, in order to control demand due to the fact that its rates have become considerably more competitive in the current economy.

Lenders have recently witnessed a significant rise in swap rates (which defines the cost of borrowing fixed rate funding on the money markets) to a new high of 6.49%, which has left them with no other choice than to increase the price of mortgages in general. The average two year fixed rate now stands at 6.75%, which is the highest rate borrowers have experienced in the last ten years.

The situation looks set to only deteriorate further, with lenders having to pay excessively high prices in order to secure funds and a lag time of several weeks before this cost is ever transferred on to mortgage customers. As one of the UK’s biggest building societies, Nationwide pointed the finger of blame towards the marked increase in the cost of borrowing money on the financial markets for the rise in rates, furthermore, it accused a number of its competitors for raising mortgage rates and thus setting in motion the recent events in the housing markets.

The rates on remortgaging homes have also succumbed to the price hikes and remain higher than those for first-time buyers. During this volatile period in the markets consumers can expect to see frequent changes to fixed rate mortgages across the industry from a host of lenders and building societies. Halifax, the Abbey National and Bradford & Bingley are also among those to have raised their mortgage rates in recent times, with Halifax, one of the UK’s biggest mortgage lenders, resorting to only offering its best tracker deals to those who are able to come up with at least 40% of their deposit.

So, it appears that those that will be hit hardest by current market changes may be first-time buyers and younger people buying homes, who may not be able to come up with enough money for a deposit to be eligible for any of the rates that are still being offered by Britain’s mortgage providers and lenders.