Fixed rate mortgages become cheaper, confirms Bank of England

Posted under General by Jermaine

The Bank of England has confirmed that some fixed-rate mortgages have become cheaper in July. The latest average rate being charged on a new two-year deal was 6.36% for borrowers with a 25% deposit. It was 6.6% in June; the highest in the last eight years.

Both the big and small lenders had started cutting lending rates since last month in order to attract more borrowers. Latest to join these lenders were Halifax and Abbey.

However, borrowers who sought loans on a five-year fixed term with a 5% deposit had to pay 7.14% in July compared to 7.13% in June.

The credit crunch has caused a significant upset in the UK housing and mortgage markets. This has resulted in steep rise in the cost of home borrowings.

According to Michelle Slade of Moneyfacts, higher fees and interest rates charged by the lenders are compelling borrowers to reluctantly put out larger deposits. She informs that offer rates are much higher, while swap rates, bank base rates and Libor rates, which determine the overall mortgage rate, are lower than last year during the same period. Slade points out that the fall in house prices and increase in the risk of default is forcing lenders to raise prices for the higher risk factors.

Slade warns that it may take more time before lenders feel much safer to lend and therefore cut their rates.