Mortgage rates hit their lowest point in seven years... but it helps if you've got a 20% deposit

Published 23rd Jun 2010

The average cost of a two-year fixed rate mortgage has fallen to its lowest level for nearly seven years.

Interest rates charged on two-year fixed rate deals have been falling steadily since August last year, dropping to an average of 4.52 per cent today, according to Moneyfacts.

The rate is the lowest since September 2003, and down from 4.93 per cent at the beginning of the year.

The cost of five-year fixed rate deals has also improved during the past year, falling from an average of 6.09 per cent in June 2009 to 5.61 per cent now.

At the same time, there has been a steady improvement in product availability, with the number of different residential mortgages available rising from 1,601 at the beginning of the year to 2,635 now.

The biggest increase has been seen in mortgages for people with deposits of 15 per cent or 20 per cent.

There are now 482 different mortgages for people borrowing 85 per cent of their home's value, up from 254 at the end of December.

The number of deals for people borrowing 80 per cent of their home's value has more than doubled during the same period, rising from 153 to 318.

The ongoing steady fall in the interest rates charged on fixed rate mortgages, combined with the rising number of products available, has prompted some commentators to say now may be a good time for people to consider remortgaging.

Ray Boulger, senior technical manager at John Charcol, says anyone on a standard variable rate (SVR) of 3.5 per cent or more, who does not have an adverse credit history and has at least 15 per cent equity in their property should consider remortgaging.

But he added that people on very low SVRs, such as homeowners on Nationwide or Cheltenham & Gloucester's 2.5 per cent, are probably still better off staying put.

Data from Moneyfacts shows that consumers still favour fixed rate mortgages over variable rate ones, with around two-thirds of people who are remortgaging opting for a fixed rate deal.

This is despite the fact that the average cost of a tracker deal is significantly cheaper than a fixed rate one at 3.6 per cent, although it has remained broadly unchanged since the beginning of the year.

Mr Boulger said: 'I think all the signs are that we are going to see the base rate staying low for two to three years.

'You will be able to get a fixed rate at this sort of level or maybe slightly cheaper over the next few years as the fixed rate pricing will need to reflect that the bank rate is going to stay low for some time.'

He said people are likely to be best off opting for a tracker mortgage, but if they particularly want the security of a fixed rate they should consider fixing for five or even 10 years.

Chelsea Building Society has the best five-year fixed rate deal at 3.99 per cent for people with a 25 per cent deposit who pay a £495 fee, while Yorkshire Building Society has a 10-year fixed rate at 5.09 per cent with a £995 fee.

First direct is leading the field on variable rate deals, with a lifetime tracker of base rate plus 1.79 per cent, giving a current rate of 2.29 per cent, for people with a 35 per cent deposit who pay a £99 fee.

HSBC has the best lifetime tracker rate for people with only a 10 per cent deposit at 4.49 per cent with a £495 fee.

Source: ' Daily Mail '

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