New Year, New Libor

Life was expensive for new borrowers during the latter half of last year, as a result of the liquidity crisis pushing up the banks' interest rates. However, following the World Central Banks' cash injection to the money markets in December, 3 month LIBOR has now dropped under the 6% mark, from 6.65% to 5.89%.

Katie Tucker of John Charcol comments: "This is excellent news for borrowers. If banks can borrow money cheaper, they can lend money cheaper. If the Bank of England rate also falls this month, the next few weeks should bring some very good value mortgage deals back onto the market."

“Borrowers reaching the end of their deals in January or February often fall into the trap of leaving the arrangement of their remortgages until after the holiday period, leaving them insufficient time for the transfer to go through. Anyone whose rate is due to finish soon should act immediately to avoid automatically shifting up onto their lenders' standard variable rates and potentially losing several hundred pounds each month as a result. Using a broker is by far the easiest way of knowing you have shopped around and found the right deal for your circumstances."

"Unsurprisingly, there has been little activity from lenders in terms of withdrawing or launching new rates over the festive period, however new product ranges are expected to surface this week. SVR changes announced after the Bank Rate cut last month, were dated mainly for 1st January, so many lenders are now operating on variable rates reduced by 0.25%, another long-deserved respite for borrowers with discount rate mortgages. Only a few of the smaller banks and building societies seem to have not passed on the full reduction. Interestingly, Lloyds TSB has also adopted the strategy of increasing its tracker rates by 0.1% or 0.2%, despite new, lower funding costs. This means that they are effectively splitting the difference with the borrower, of the value of December's base rate drop, by starting their rate that little bit higher. "

What products are available now?

Tucker continues: "Coventry has started the ball rolling with a great new two year fixed rate at 5.49% fixed for 2 years, with a fee of £999, which is low compared to the current market. Not only that, but it comes with free valuation, and on remortgages, free legals, but most importantly for 2008, it is flexible, allowing overpayments, and even an offset account. An offset will be a handy thing in 2008; borrowers should be reducing their debt as much as possible, but may feel more comfortable knowing that they could access that money via a convenient instant access savings account if they really needed to. Britannia continues to have the lowest five year fixed rate at 5.39%, with a fee of £999."

"The last Bank rate cut was voted for unanimously, and 2 year swap rates are right down to 5.24%, implying that the case is strong for another cut in the near future. This means that tracker rates are becoming very popular again and are likely to offer the best value. Yorkshire Bank is offering a generous 0.76 discount from Bank Rate, giving a current rate of 4.74%, although the fee is £2.5%.

A more rounded deal is Co-op's 5.49% which is a discount of 0.01 from base for two years. The fee for this one is £999 and it comes with free valuation and legals on remortgages,

although, like many lenders with good rates, Co-op has been struggling with service levels. This simply means you have to allow yourself more time to apply: six to eight weeks should be sufficient."