By Jennifer Ryan Quoted from bloomberg (link displayed below)

March 11 (Bloomberg) -- U.K. banks raised the cost of borrowing for homebuyers with the smallest deposits to a seven- year high, declining to pass on two interest-rate cuts by the Bank of England.

The average rate offered by lenders on loans for 95 percent of the price of a property, fixed for 24 months, rose to 6.55 percent, the highest since September 2000, the central bank said today on its Web site. The cost fell for mortgages worth 75 percent of the value of a home.

Banks have been reassessing the credit risk of their loan books after reporting losses and writedowns totaling almost $190 billion stemming from the collapse of the U.S. subprime mortgage market. Today's data suggest that lenders are making it harder for consumers buying their first property, who typically have smaller savings to invest, to afford a home.

``Banks are clearly now engaged in more active risk- pricing,'' :S:d1">George Buckley, chief U.K. economist at Deutsche Bank AG in London, said in a note. ``Riskier borrowers are failing to benefit from the fall in policy rate expectations.''

While the Bank of England cut the benchmark interest rate twice since December to 5.25 percent, banks have been reluctant to pass on the reductions in full. They have also curbed the number of loans on offer, with mortgage approvals in January staying close to the lowest in nine years.

The average rate on a mortgage for 75 percent of the price of a property, fixed for two years, fell to 5.76 percent in February from 5.97 percent the previous month, still less than the quarter-point cut in the benchmark on Feb. 7, the central bank's data showed.

Separate data today show average first-time homebuyers had larger deposits and borrowed smaller loans in proportion to their incomes in January than in December, in another sign that banks are tightening lending standards.

First-time buyers took out mortgages at 88 percent of the property's value and 3.32 times their salary, compared with 90 percent of the price at an income multiple of 3.38 percent the previous month, the Council for Mortgage Lenders said today.

http://www.bloomberg.com/apps/news?pid=20601102&sid=aDr4CpwziB2o&refer=uk