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Business News

Abbey cuts cost of fixed-rate mortgages

Abbey has become the latest bank to cut the cost of its fixed rate mortgages as the cost of wholesale funding continued to ease. The group is reducing the cost of its two- and three-year fixed rate deals by up to 0.15 per cent from Monday – the lender's second cut in 10 days. Abbey said it had made the reductions following an easing in swap rates, upon which the deals are based.

The news comes the day after Barclays' lending arm The Woolwich cut the rate of its lifetime trackers by 0.1 per cent and its fixed-rate products by up to 0.3 per cent. Other lenders have also made reductions in the past week.

The downward move is good news for homeowners, despite yesterday's decision by the Bank of England's Monetary Policy Committee to keep the official cost of borrowing at 5 per cent.

Abbey is reducing its two-year fixed-rate deal for people who borrow 75 per cent of their home's value and pay a £999 arrangement fee to 6.34 per cent, while a comparable three-year loan is being reduced to 6.29 per cent. For its best rate, homeowners need a 30 per cent deposit, with Abbey introducing a new three-year fixed rate deal of 5.99 per cent with a £1,695 arrangement fee.

Research from Spicerhaart Financial Services showed that homeowners are opting for longer-term fixed deals for better security and lower rates. Just 18 per cent of a sample of 1,000 mortgages taken out in June were two-year fixed-rate loans, down from 60 per cent 12 months ago.