Rates fall below seven per cent but how long can they stay there?

Julian Knight finds that homebuyers should take advantage of deals from the likes of Halifax and Nationwide while they last

Competition may be returning to the UK mortgage market as a host of lenders lower their rates to attract new business. In the past week to 10 days, the Nationwide, Abbey, Yorkshire building society and most recently the Halifax have all moved their rates lower. Some lenders have reduced them by 0.5 per cent, cutting the repayment costs on a £100,000 mortgage by around £30 a month.

According to the financial information service Moneyfacts, the average price of a two-year fixed-rate deal across the entire UK mortgage market has fallen by around 0.1 per cent to below the psychologically important 7 per cent mark.

Volatility in the mortgage market has become commonplace since the credit crunch started last summer but, for some market watchers, the latest moves are significant because of the size of the lenders involved. "Let's take good news for what it is," says David Hollingworth from broker London & Country. "These are big lenders that have been moving. There appears to be an element of competition returning to the market, something we haven't seen for a long time."

One brave, albeit small, lender, the Chorley & District building society, has moved back into the 95 per cent loan-to-value marketplace, where many customers are first-time buyers who have struggled to find the high deposits demanded by lenders.

Michelle Slade from Moneyfacts says: "This is a case of a lender testing the water again to see what level and type of application they get. They may only be small but it will be interesting to see if anyone else follows suit, as high loan to value is key to stimulating first-time buyer numbers."

However, Ms Slade adds that the "big guns" are still avoiding such offers at the moment: "Most are asking for a minimum 10 per cent deposit – and for their very best-priced deals they want 25 per cent."

But the experts warn that the green shoots of recovery in the mortgage market may soon be trampled under foot. "The difficulty is that the money markets are still so volatile," says Ms Slade. "We are seeing moves up and down of a magnitude unheard of in the past. If rates on the money market go up, then inevitably we will see this reflected in the pricing of mortgages."

Mr Hollingworth also fears that the lenders currently sticking their necks out and offering lower rates may not be able to cope with the business that flows through their door: "Nationwide, for instance, has priced itself competitively again, and we are seeing large volumes going to them. The question is, can these lenders cope with the demand from the large number of people who are looking to remortgage at the expiry of their current fixed-rate deal? In the past, lenders have found that they have been inundated and been unable to maintain service levels, so have raised their rates to put off new applications."

As for those people looking to take advantage of the slightly lower rates on offer, Mr Hollingworth's advice is to act fast before the deals disappear: "The situation is so fluid – when you see a good offer, then best move quickly."