Mortgage rates fall back but 100 per cent deals are dead

The cost of two-year fixed rate mortgages has fallen back to the level it was a year ago when the credit crunch was getting under way.

However, it is now only home owners who have a minimum 25 per cent of equity in their properties, who qualify for the best rates, with many first-time buyers having to pay much higher rates than they would have last year.

Moneyfacts.co.uk, the financial comparison site, says the average two-year fixed rate mortgage is currently charging 6.59 per cent, compared to 6.56 per cent in August last year. However, Moneyfacts said that the average arrangement fee was now £964, compared to just over £800 a year ago. Furthermore, the average amount of a property's value that lenders are willing to advance is now 80 per cent, compared to 90 per cent in August 2007.

This week, Britannia Building repriced a number of its fixed rate deals, reserving the lowest rates for customers who have at least 50 per cent equity in their home. Those with less than 25 per cent equity in their home will have to pay 0.75 percentage points more than Britannia's lowest rates.

It is also now all but impossible to get a mortgage for more than 95 per cent of a property's value, whereas last year several lenders still offered loans of 100 per cent or greater.

Although mortgage rates have fallen since the height of the credit crunch earlier this year, they are still much higher relative to the Bank of England base rate than over most of the past decade. In August last year, base rates were at 5.75 per cent, compared to 5 per cent today. However, back then the cheapest two-year fixed rate deal was below the base rate. Today, the lowest two-year fixes are 0.6 percentage points above base rate.