Northern Rock, HSBC raise mortgage rates

LONDON (Reuters) - British bank HSBC (HSBA.L) and state-owned rival Northern Rock said they had raised repayment rates on some mortgages, despite efforts by the government to encourage banks to lend more.

Northern Rock said on Wednesday it had raised rates on some fixed-rate loans by between 0.2 and 0.3 of a percentage point.

The move takes the rate on the bank's popular one-year fixed mortgage to 4.19 percent from 3.99 percent, while its 5-year fixed loan climbs to 5.19 percent from 4.89 percent.

Northern Rock, taken into public ownership in February six months after the credit crunch left it reliant on an emergency Bank of England loan, said the increases were designed to curtail strong demand for its mortgages, allowing it to concentrate on paying off its debt to the central bank.

"We have to balance the priority of shrinking our balance sheet with maintaining a more modest presence in the new lending market," a Northern Rock spokesman said.

Separately, HSBC said on Wednesday it was raising the spread on a popular tracker mortgage to 164 basis points above the BoE's base rate, currently 3 percent, from 99 basis points. The increase, which takes effect on Thursday, takes the rate on the loan to 4.64 percent from 3.99 percent.

An HSBC spokesman said the move came in response to soaring applications for the mortgage as homeowners sought out the most competitive deals in a tougher home loans market.

"We've been seeing three to four times normal business levels," the spokesman said.

The UK government has been urging banks to increase lending to consumers and small businesses in an effort to bolster the flagging economy. On Tuesday, it set up a Lending Panel to monitor lending to businesses and households.

The abrupt drying up of mortgage finance since the onset of the credit crunch in August 2007 has contributed to a sharp fall in property prices, exacerbating the economic slowdown.

(Reporting by Myles Neligan; Editing by Jon Loades-Carter)