Mortgage costs rise despite rate cut

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The average cost of fixed-rate mortgages has increased over the past month, despite a cut in the Bank of England base rate at the start of December, and a marked increase in liquidity in global money markets.

According to new research by, the comparison website, the price of the average fixed-rate mortgage rose from 7.30 to 7.31 per cent over the last month, indicating banks' continued reluctance to take on high volumes of new business.

And according to another comparison site,, in the last month 11 providers have also cut the amount they are willing to lend relative to a property's value. Alliance & Leicester, Britannia Building Society and Egg, for example, have all cut the maximum loan to value on their products from 95 to 90 per cent.

Louise Cuming, the head of mortgages at, said that while borrowing was now starting to get cheaper – and more accessible – for those with the very best credit ratings, most borrowers were experiencing the opposite. "Unless you are a low-risk borrower, a new fixed-rate mortgage will cost you more," she said. "I shudder to think what would have happened to the average fixed-rate mortgage if the Bank of England hadn't cut rates. Many homeowners who waited until after the interest rate cut to get a fixed-rate deal will be worse off."

Melanie Bien, a director at the independent mortgage broker Savills Private Finance, added: "Three-month Libor [the rate at which banks lend to each other] has plummeted recently as liquidity has returned to the money markets. It is now the same as it was last April – long before the credit crunch. But there are few signs of lenders reducing their new variable rates."

Ms Bien added that two-year swap rates, which determine the pricing of two-year fixed-rate mortgages, have also fallen sharply in anticipation of another base-rate cut, but fixed-rate deals have still stayed higher than normal.