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Lenders forced to lock in borrowers

Planet Earth may have passed the Equinox but nobody saw fit to inform that rarest of breeds, the spring house-buyer. The market remains catatonic and the big lenders are beginning to fall behind their business targets.

At the same time the banks and building societies have finally woken up to the futility of their discount price war. This means a growing number of attractive offers have longer "tails", which lock the borrower in to the lender's variable rate after the discount has expired.

Lenders offering one-year discounts have always locked their borrowers in afterwards for obvious commercial reasons. But an increasing number of three-year discounted mortgage offers now require the borrower to stay loyal for up to a further two years.

The same is also true for fixed-rate mortgages. Halifax, Britain's largest lender, this week unveiled a two-year fixed-rate mortgage at 6.99 per cent for those borrowing more than 75 per cent of the value of their property and 6.74 per cent for those borrowing less than 75 per cent. However, customers have to stay with Halifax for another two years on the variable rate.

Fixed-rate offers in the medium term are still expensive. Anything under 7 per cent for two years is good value provided the offer does not contain an onerous tail. If you are looking to fix for five years then you will have done well if you come in under 9 per cent.

Most people are still going for discount mortgages. Offers of 2 per cent per annum for three years still represent good value but brokers are advising clients to check for lock-in clauses.

"Lenders cannot afford to continue cutting their margins to get new business,'' said Phillip Cartwright at London & Country Mortgages. He predicts that more lenders will start offering loyalty bonuses to existing customers.

"At the moment you have a situation where lenders such as the Abbey National and the Alliance & Leicester, which both offer discounted mortgages of 2 per cent over three years, are seeing an osmosis of customers between them. It's two-way traffic as borrowers take advantage of the discount."