Mortgage lenders cut rates in home loan price war

A mortgage price war has broken out as lenders slash the cost of borrowing in a frenzied attempt to attract new business. Yesterday, Northern Rock cut up to 0.9 per cent off its fixed-rate mortgages. Today, it is the turn of the Coventry Building Society as it launches a market-leading 3.49 per cent five-year fixed rate.

The spate of mortgage rate cuts in recent weeks has accelerated to a daily event as lenders take turns to top the best-buy tables. Fixed rates now start from as low as 2.39 per cent for a two-year deal, and rates could fall lower as banks and building societies chase the narrow market of remortgagers or new buyers who can afford to slap down a good-sized deposit.

The latest offers are not aimed at first-time buyers, with the best deals needing a deposit of at least 40 per cent. But the fight has become more intense as the chance of a base rate increase in the near future – or even in the next year – recedes. That has led to swap rates falling, giving lenders funds to offer borrowers even more tempting deals, according to David Hollingworth, of London & Country Mortgages.

"Swap rates, which have an impact on fixed-rate pricing, have been falling as the likelihood of a base rate rise in the near term diminishes," Mr Hollingworth said. "That has helped lenders but there is certainly a more competitive market place and lenders are showing a lot more appetite to take a share of what is a constrained market."

In fact, with mortgages sometimes taking months to complete, many lenders are looking to get mortgage business on the books now to meet their end-of-year loan targets.

"Lenders cannot afford to leave any push too late and, consequently, they are having to fight on price now much more than we have been used to recently," Mr Hollingworth added.