New two-year view of bank rate brings first of low fixes

Katie Tucker of John Charcol comments, “Three month LIBOR is falling and now stands at 6.34%, compared to the 6.9% that it reached last week, following the £10 billion pumped into the wholesale money markets by Bank of England last week. A further £10bn is also due this week, and again next week. The silver lining for mortgage borrowers in this clouded sky that is the credit crisis will be the minimal chance of base rate rising to 6%; it is now more a matter of when Bank Base rate will start to fall. This has caused the swap rates that govern the prices of fixed rates to reduce nearly half a percent over the last month, although few lenders are yet to pass this on as they keep a close eye on their profit margin."

What is available for borrowers now?

“Lenders have seen the danger in funding their lending using LIBOR but pricing it using Bank rate. Sub-Bank rate trackers are being withdrawn across the board; ones without a high fee to subsidise them will soon be a thing of the past. There are only few remaining so borrowers should act quickly if they want to gain a real advantage from any potential fall in Bank rate. For those who prioritise a low rate, John Charcol has a very generous three year tracker at 0.66% under base with a 1.5% fee. Unusually, it is available to 95% without Higher Lending Charge and for remortgages, comes with free valuation and legal fees. For purchases Nationwide has a good value 0.27% discount under Bank rate for two years, with a fee of only £599. It’s flexible with the facility to overpay, underpay, take payment holidays and crucially, the option to droplock to a fixed rate, so covering all possible eventualities.”

Tucker continues, “Woolwich has launched fixed rates at 5.59% for two or five years, with free valuation and legals on remortgages, and an arrangement fee of £995. This is excellent for this market and we anticipate they will be popular - funds will not last long so borrowers should act quickly if they need to remortgage soon. Elsewhere fixed rates are becoming cheaper, but they are still not low enough to compare to the trackers and discounts, especially if you factor in an expected downward movement of Bank rate in the next two years. In a few months we should see fixed rates cut by many more lenders so if borrowers are looking for the security of a fixed rate and miss out on the Woolwich range, they should try and hold on a bit longer if they can. Alternatively, they could look at a one year fix with the option to ‘droplock’ to a new rate option afterwards. Charcol’s 5.39% is fixed for one year, then defaults to a 0.39% above base tracker, or there is the option to drop out and lock into a fixed or capped instead. This product is designed exactly to help borrowers in the uncertain sort of market we are in now. To fix for longer term, National Counties’ new five year fix is very competitive at 5.64% with a fee of only £695 with free valuation and legals for remortgages, or 5.49% for purchases, also with a fee of £695.”