Lenders cut rates in home loan price war
A mortgage price war has been building in the past few weeks as lenders slash the cost of borrowing in a frenzied attempt to attract business. Yesterday Northern Rock cut up to 0.9 per cent off its fixed rate mortgages. Today it is the turn of the Coventry building society as it launches a market-leading 3.49 per cent five-year fixed rate.
The spate of mortgage rate cuts in recent weeks has accelerated to a daily event as lenders take turns to top the best buy tables. Fixed rates now start from as low as 2.39 per cent for a two-year deal and rates could fall lower as banks and building societies chase the narrow market of remortgagers or new buyers who can afford to slap down a good-sized deposit.
The current battleground is far from first-time buyers, with the best deals needing a deposit of at least 40 per cent. But the fight has become more intense as the chance of a base rate increase in the near future – or even in the next year – recedes. That has led to swap rates falling, giving lenders funds to offer borrowers even more tempting deals, according to David Hollingworth of London & Country Mortgages.
"Swap rates, which have an impact on fixed rate pricing, have been falling as the likelihood of a base rate rise in the near term diminishes," Mr Hollingworth said. "That has helped lenders but there's certainly a more competitive marketplace and lenders are showing a lot more appetite to take a share of what is a constrained market."
In fact, with mortgages sometimes taking months to complete, many lenders are looking to get mortgage business on the books now to fulfil end-of-year loan targets. "Lenders can't afford to leave any push too late and consequently they are having to fight on price now much more than we've been used to recently," Mr Hollingworth said.
Melanie Bien, of the mortgage brokers Private Finance, said lenders are being forced to drive down rates now as they have struggled to attract borrowers in the first six months of 2011. "We've passed the half year and most lenders aren't anywhere near where they want to be at this stage. They are having to offer much more competitive rates to bring in new business."
She believes rates could fall further. "Compared historically the current rates are fabulous, but they could go further, particularly longer-term deals such as over five years. They could fall to as low as 3 per cent," Ms Bien said.
Mr Hollingworth agrees that the battle is likely to heighten in coming weeks as lenders set new low rates.
"Swap rates remain very low so there is still scope for more lenders to push into the sharper end of the market and become more competitive, although there will be a limit as to just how much further we can expect them to go," he said. "Borrowers that have been mulling a fix will find the current deals offer exceptional value and are as low as we've ever seen. Those that hang on should not expect to grab as low a fix when a base rate hike becomes more likely."
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