Following an increase in the costs to lend money between banks, mortgage rates reached a seven year high last month according to figures from the Bank of England based upon deals available to those with a 25 per cent deposit.

Experts say that the high mortgage rates were predominantly due to the sharp rise in the cost of lending between banks, following the collapse of Lehman Brothers, the US bank, in mid-September.

The three month sterling Libor rate is the key rate for the banks and a strong indicator for mortgage lending in the UK.  It hit its highest point for the last ten months last month at 6.29 percent and the banks were nervous.

Since then though, the Libor rate has fallen significantly giving increased confidence to the mortgage lenders.  After the Bank of England cut the base rate by 1.5 per cent last week, mortgage lenders started to withdraw their tracker rates, but now that the Libor rate has followed suit, they are starting to reconsider.

Today, the Abbey is expected to be the first bank to announce a reintroduction of a base rate tracker mortgage product and others, such as the Halifax and Lloyds TSB, are expected to follow suit.

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