Fixed rates fall and tracker rates increase

“The good news for borrowers is that two year swap rates (on which lenders base fixed rate prices) have finally fallen under the 5% mark in anticipation of another rate cut, so fixed rates are now becoming much more competitive.” comments Katie Tucker of John Charcol. “Fixed rates were artificially high for the latter part of 2007 as lenders needed to make back some of the money they were losing on variable rates while LIBOR was abnormally high. Now, there is a realignment occurring between their cost of funding and the resulting cost of the deals that lenders offer customers; multiple lenders including Woolwich, Lloyds, Intelligent Finance, Cheltenham and Gloucester and others, have reduced their fixed rates by around 0.15%, yet increased tracker rates by the same amount this week. Even so, trackers will prove best value for most as Bank rate is widely expected to fall to 5% or lower this year. Discounts could also prove as good value if lenders respond to Alastair Darling’s call to pass on the full discount of any Bank rate cut.”

“One area that homebuyers may need additional help obtaining mortgages for this year is new build properties. Properties in many areas are expected to lose value this year, predominantly as a result of the re-adjustment of the overpricing that has occurred over the past few years. One of the worst casualties is expected to be new build flats, and consequently this week Accord has joined Mortgages Plc, West Bromwich and Preferred in no longer lending mortgages above 75% on them. Many other lenders, however, can still help so use a broker to find the right one for you”*

What products are available now?

Tucker continues: “Leeds Building Society has clearly obtained some competitive money, or had a lot of savings deposited, because it is the market leader on most categories of fixed rates. Yet the message to borrowers is allow time to apply: lenders with good rates will be very busy, very soon and their queues to issue mortgage offers creep quickly, up to several weeks long. Leeds has two year fixes of 5.25% with a fee of £999, or if your mortgage is less than £67,500, their 4.99% with a 2% fee, is better value. This one also has no Early Repayment charges so could be useful for borrowers who definitely need a fix but may need to sell early. Leeds also holds the top spot for five year fixes with their 5.39% with £795 fee. Other lenders are expected to follow suit soon, with more competitive fixed rates.

“Tracker rates are more popular at the moment. Some are offering very low rates for a percentage fee, which can be confusing, so have your broker calculate which mortgage deal is best value for your personal situation. Lloyds TSB has a tracker at 0.62% under bank rate for two years giving a very low pay rate of 4.88% for a 2.5% fee, but with free valuation, free legals, and no exit fee. Alternatively, Nationwide has a 0.02% tracker over base for two years, giving a pay rate of 5.48% for a flat fee of £1,499. All fees considered, the break point between the two is about £180,000, so if your loan is more than this, the Nationwide one is better value.”