Money Insider: It's number-crunching time for home loans

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The Independent Online

The mortgage market has been a hotbed of activity over the past 10 days, with a number of lenders reducing their fixed rates. This is no surprise as the swap rates have fallen by up to 0.45 per cent since 12 April.

Activity levels have started to slowly rise in recent months, albeit from a very low point, and it seems lenders are eager to get a slice of the pie, no matter how small it may be. Santander trimmed 0.1 per cent off its two-year fixed rate (80 per cent loan-to-value), which now stands at 4.19 per cent with a £995 fee. It was a move in the right direction but still falls some way short of the 3.79 per cent with £995 best-buy deal from Leeds Building Society. Norwich and Peterborough Building Society cut the rates on its two- and three-year fixed-rate mortgages by 0.3 per cent for deals up to 85 per cent LTV. This sees them top of the two-year, fixed-rate best buys with a rate of 3.99 per cent and fee of £995.

The Co-operative Bank has cut rates across a range of products, including 0.3 per cent off its three-year, fixed-rate deal (85 per cent LTV), which is now at 4.99 per cent with a £999 fee. It makes its way into the best-buy tables but falls just short of the market leader from the Yorkshire Building Society – at 4.89 per cent with a lower £495 fee.

Chelsea Building Society put the cat among the pigeons this week with a five-year fixed rate of below 4 per cent, which is quite a rarity these days. At 3.99 per cent for loans up to 75 per cent LTV, the rate stands out, but you will need to take account of the product fee, which is a whopping £1,995. There is another option from Chelsea which may prove a better option for those looking for a smaller mortgage sum, priced at 4.39 per cent with a much lower £595 fee.

The extensive choice of rate and fee combinations is not necessarily a bad thing because the right product will depend on the amount and term of your mortgage and ultimately the total cost to you. That's why it is always worth taking the time to speak to an independent mortgage professional who can crunch the numbers and pick out the best deal for your circumstances.

Saving plans gives lenders headaches

the news that National Savings and Investments is once again offering index-linked savings certificates will be welcomed by savers, but this is a product launch that some banks and building societies could have done without. NS&I withdrew its previous range of these popular tax-free savings certificates in July 2010 because of unprecedented levels of demand and a risk that it could distort the wider savings market. Over the past 10 months, savers have continued to struggle to get a real return on their savings, because of rock-bottom interest rates and surging inflation.

With inflation figures released last Tuesday showing that the Consumer Prices Index (CPI) rose by half of one percentage point to 4.5 per cent in April – the highest since September 2008 – NS&I's decision couldn't have come at a better time for savers. The 48th-issue savings certificates will pay savers 0.5 per cent more than the rise in the Retail Prices Index (RPI) for five years, with a maximum tax-free investment of £15,000 per person. This is less generous than previous issues, which paid 1 per cent on top of RPI and were offered as a three-year option. But with no bank or building society accounts able to get anywhere near the potential level of the new NS&I returns, large amounts of cash could disappear from the balance sheets of high-street financial institutions. A number of other providers have dabbled in the index-linked savings market recently but, crucially, they haven't been able to offer the "tax-free" carrot. For example, BM Savings offered RPI plus 1.5 per cent, but with 20 or 40 per cent lost to the taxman, it is less attractive than NS&I's.

If you take a look at the best-buy savings tables at the moment you'll see they are dominated by building societies, desperate to pull in funds to lend out again as mortgages. The downside of the move by NS&I is that, while it could force some savings rates higher in the short term, the knock-on effect may be reflected in higher mortgage pricing from some mutuals and high-street lenders and possibly a reduction in availability of funds for home loans.

Andrew Hagger is an analyst at Moneynet.co.uk

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