Banks reduce remortgage rates

Published 10th Nov 2010

Banks are trying to tempt home owners onto new deals by making significant cuts to their rates.


Many borrowers are remaining on record low standard variable rates instead to avoid paying a higher rate on a new deal. Banks have reacted by making further cuts.

The average cost of a tracker loan dropped for the third consecutive month to hit a new record low of 3.5 per cent, according to the Bank of England.

The rates charged on two-year fixed rate mortgages for people with a 25 per cent deposit dropped to 3.72 per cent, the second lowest level since records began in 1995, while the typical cost of a five-year fixed rate mortgage fell by 0.19 per cent to a five-year low of 4.85 per cent.

The decline in mortgage rates comes despite swap rates – which lenders use to help price their fixed rate deals - ending the month slightly higher than they started it.

The fall is thought to have been driven by increased competition among lenders, who are trying to tempt home owners to remortgage off low standard variable rates (SVRs).

A number of lenders have launched deals in recent weeks that are specifically aimed at people who are remortgaging.

Michelle Slade, spokeswoman for financial information group Moneyfacts.co.uk, said: “We are seeing a bit more competition back in the market as lenders want to do more lending.

“They are trying to kick-start the remortgage market. Many people are on low SVRs and have no reason to move.”

But despite the recent decline in mortgage rates, the cost of home loans still remains high compared with the Bank of England Base rate and swap rates.

Melanie Bien, of mortgage brokers Private Finance, said: “Lenders are keen to entice borrowers off their cheap standard variable rates by offering increasingly competitive mortgage rates, which make them better profits. Yet while these mortgage rates are attractive, the best deals are still only available for those with significant equity in their homes, of 40 or even 50 per cent. The vast majority of those remortgaging will have much less equity, and therefore find it more difficult, to access a market-leading rate.

“Until the threat of an interest-rate rise becomes a reality, many homeowners will stay where they are - no matter how competitive the remortgage rates become.”

Source: ' Telegraph '

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