Three leading mortgage lenders recently cut their interest rates even before today’s Bank of England decision regarding the base rate. Abbey, Lloyds SB and Cheltenham & Gloucester announced a reduction of up to 0.30%.
It is the fifth cut in the last month by Lloyds TSB. Skipton Building Society revealed that it now had on offer 95% per cent loans for first time buyers. This now means that the cost of a mortgage is now at levels not seen since the start of the credit crunch.
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This can only be seen as good news as the number of secured loans approved in July rose slightly over the previous month.
The Monetary Policy Committee (MPC) of the Bank of England has decided to keep base rates at 5 per cent again this month which it has done since April, so what is driving the sudden reduction in mortgage rates?
The main reason is the recent fall in something called swap rates, the rates financial institutions charge when lending to each other. These rose sharply in June, forcing up mortgage interest rates, but have started to fall. Swap rates are now at their lowest for quite a few, fuelling the widespread cuts in fixed-rate mortgages.
This isn’t the only factor driving down rates. Mortgage lenders are beginning to regain their confidence and are offering lower rates than their competitors. The bad news is that the most competitive rates are only available to people with large deposits or plenty of spare equity in their property. The greater the loan to value ratio (LTV), the higher the interest rate. Nationwide currently charges 5.78 per cent for a two-year fixed rate up to 60 per cent LTV for remortgages (with a ?599 arrangement fee), rising to 5.88 per cent up to 75 per cent LTV and 6.33 per cent up to 90 per cent LTV. That means paying an extra 0.55 per cent if you borrow 90 per cent of your property’s value instead of 60 per cent. With the drop in property prices, people looking to remortgage will have shrinking equity in their property, and will need to find a higher LTV loan.
These lower rates won’t last long. The next set of rates are likely to be more expensive. So buy now while stocks last.
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