Fixed rate mortgage deals back to pre-credit crunch levels - with a catch

Published 17th Sep 2008

Fixed rate mortgages have dropped below 5 per cent again as competition returns to the market.

But the cheaper two-year deals come with a catch - an arrangement fee of more than £3,000.

The Halifax has launched a two-year deal at 4.89 per cent while Cheltenham & Gloucester has also shaved its rate below 5 per cent.

The cost of three-year fixed rate loans have fallen by around 0.56 per cent, while best buy five-year deals are down by an average of 0.4 per cent.
mortgage

Tracker deals are also cheaper, with leading two-year trackers seeing their rates fall 0.89 per cent in the past six weeks despite the Bank of England base rate remaining on hold.

The Woolwich has also trimmed rates on fixed and lifetime tracker mortgages. Its two-year fixed rate has gone from 5.99 to 5.79 per cent while ten-year fixed rates were cut from 5.69 to 5.64 per cent for those who can put down a deposit of at least 40 per cent.

The moves continue the current trend among lenders to help push fixed rate deals back down to their pre-credit crunch levels.

The cost of tracker deals has also fallen in recent weeks, with market leading two-year trackers seeing their rates come down by 0.89% despite the Bank of England base rate remaining on hold.

But the recent trend among lenders to cut their rates is likely to come to an abrupt end following the fallout from the collapse of Lehman Brothers.

While lenders are not expected to increase their rates as they did earlier this year, it is thought likely that they will stop passing on any reductions in wholesale funding costs to borrowers.

Michelle Slade, analyst at Moneyfacts.co.uk, said: 'The number of cuts to mortgage rates has slowed in the last week. Lenders are likely to be playing a wait and see game at the moment to see how things pan out in the money markets before they make their next moves.'

Ray Boulger, senior technical manager at John Charcol, said: 'Anything like this which causes uncertainty has an impact on the banks. Some will want to cut back on lending in the short-term.'

Katie Tucker, technical manager of Mortgage Force, said: 'If Libor increases, many lenders with good deals won't be able to sustain them, and will only be able to replenish them with higher rates, so borrowers should act immediately on any rates they are considering.'

She added: 'Despite a fortnight of gently improving mortgage deals, the lenders are still in a precarious position.

'Many are operating with fewer staff and limited funding, meaning they can get overwhelmed quickly so if one lender has a sweet deal sticking out, they get so many applications that they have to replace it with something less attractive that will let them blend back into the market's flat landscape.'

Meanwhile, Moneyfacts said banks and building societies were slashing the returns paid on fixed rate bonds, which guarantee a rate for a set period of time, following the recent easing is wholesale funding rates.

The group said it had received more than 30 changes to fixed rate bonds during the past week, with the majority of providers either withdrawing the products or reducing their rates.

Ms Slade said: 'As the cost of providing the funding for mortgages increased, a large number of providers looked to their savings book to provide some of the funding.

'Now that swap rates have been declining, many may be reverting back to more traditional methods.'

Source: ' dailymail '

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