Fixed-rate mortgages offering better deal

Fixed-rate mortgage deals have fallen to their lowest level for a year as competition continues to return to the market, research showed today.

The average cost of a two-year fixed-rate loan now stands at 4.63%, the lowest level since April last year and down from a recent high of 5.21%, according to financial information group Moneyfacts.co.uk.

The reduction would save someone with a typical £150,000 mortgage around £50 a month.

There have also been falls in the cost of three and five-year deals, with these falling to 5.34% and 5.85% respectively, from highs of 5.61% and 6.24%.

The reductions have prompted commentators to say now may be a good time for people on their lender's standard variable rate to consider remortgaging to a fixed-rate deal.

Choice is also continuing to increase, with the number of different mortgages available reaching 2,076, the highest level since December 2008 and 72% above the record low reached in April last year.

A significant proportion of the new mortgages are also for people with smaller deposits.

There are now 19 different deals available for people with only 5% to put down, a 533% increase compared with a year ago, while the number of 90% loan-to-value mortgages has risen by 107% during the same period, and choice for people with a 15% deposit has increased by 85%.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Lenders have slowly become acclimatised to a new look mortgage market and continue to take more steps to improve the competitiveness of deals.

"Lenders are becoming more active in the mortgage market, which is welcome news for borrowers as increased competition is one of the overriding factors in driving rates downwards."

But she added that despite this, people still typically needed at least a 25% deposit to qualify for the most competitive deals, while overall lending was still well below normal levels.

Hannah-Mercedes Skenfield, mortgages channel manager at moneysupermarket.com, said: "It's promising that fixed-rate mortgage rates are moving in the right direction.

"With inflation rising, the potential for the Bank of England to increase base rate in the near future increases, so borrowers who are looking to fix their mortgage repayment should consider whether now is the perfect time to switch."

Ray Boulger, senior technical manager at mortgage broker John Charcol, said there was now a "better case" for taking out a five-year fixed-rate deal than there had been for some time.

He said the deals would be suitable for people who were worried about potential future rises in interest rates, particularly if there is a hung Parliament, or those who were on a standard variable rate of between 4.5% and 6%.

But he advised people against fixing for only two years, as he said tracker deals were likely to remain cheaper during this period.

The Co-operative Bank is offering the best-value five-year fixed-rate mortgage of 4.49% for people with a 25% deposit who pay a £999 fee.

For homeowners with only a 10% deposit, Yorkshire Bank is offering a rate of 6.69%, also with a £999 fee.