According to a report by the financial website Moneyfacts, the interest rate on a 2 year fixed mortgage has dropped from a peak of 7.08% seen in July, to 6.39%. The 2 year fixed rate is currently the most popular option amongst new buyers.
Michelle Slade from Moneyfacts explained that:
"Only time will tell if we have finally turned a corner, but this is the most prolonged period of cuts we have seen since the credit crunch began,"
Some have seen this as a sign of “the worst being over” in the mortgage market despite the continuing economic turmoil in other areas. There are though distinct notes of caution being raised due to a lack of confidence in the market and also for individual customers with no drop in associated fees like deposits and arrangement fees.
Ray Boulger from mortgage specialists John Charcol made clear that:
"Anybody who had a deposit of less than 10% will still struggle to get a mortgage"
This is confirmed by Lloyds TSB's recent interest rate cuts. While the bank has cut rates 5 times over the past few months only those with a deposit of 25% or more will see any reduction in rates.
David Hollingworth, of London & Country Mortgages added that:
"The very best rates are still only available to those with the biggest deposits. However, the outlook is more positive than in recent weeks. Rates are coming down and, more encouragingly, lenders are beginning to compete with each other for the best buy position."
The rate cuts have been heralded as a first sign of competition coming back to the market after a bleak period, which saw lenders consolidating what they had hoping to avoid the worst of the turbulence.
The government has been heavily involved in attempts to curb a further decline, offering various schemes to help solve uncertainty amongst lenders. Their liquidity scheme, which allowed banks to swap mortgage securities for government bonds has received praise from lenders. The scheme, which was begun in April is only set to last for 6 months and many within the industry are calling for it to be renewed.
The Council of Mortgage Lenders wrote to finance minister Alistair Darling explaining that:
“Funding problems in the mortgage market as a fundamental bar to meaningful housing market recovery. We believe that an early announcement of the renewal/extension of the Special Liquidity Scheme and any other measures being planned will help to resolve market uncertainty,"
It has been estimated the total value of mortgages “swapped”have been estimated at a minimum £50 billion perhaps as high as £200 billion.
It has also been noted that although the new rate cuts are a positive step, the Bank of England's base rate is 0.75% lower than the last time mortgage interest rates were so low. This seems to suggest that the base rate is being overtaken by other factors and is no longer a driver behind mortgage interest rates. The Bank voted today to maintain the 5.75% base rate as widely predicted.
After the recent cuts by Lloyds TSB and the Abbey, other lenders are expected to follow suit in the next weeks.
Darrell has more articles on mortgages, loans and other finance related articles .
Author: DARRELL JOYCE
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