Interest rates slashed on Lloyds mortgages

Lloyds Banking Group slashed interest rates on a number of its mortgages today and launched a new best buy deal.

The group's Cheltenham & Gloucester arm has cut rates on its two-year fixed rate and tracker products taken out through mortgage brokers by up to 0.5 per cent.

It has also introduced a market-leading two-year tracker deal charging a rate of 2.79 per cent, or 2.29 per cent above the Bank of England base rate, for people with a 40 per cent deposit who pay a £995 fee.

In a further sign that lenders are also beginning to loosen their lending criteria slightly, the part-nationalised group also introduced a two-year tracker mortgage for people buying a house with only a 10 per cent deposit of 5.99 per cent, while it reduced its two-year fixed rate loan for people borrowing 90 per cent of their home's value by 0.1 per cent to 6.99 per cent.

The group was joined by Abbey, which introduced a new two-year fixed rate deal for people borrowing 70 per cent of their home's value who pay a £799 fee of 3.69 per cent, the best deal available for borrowers with a 30 per cent deposit.

The latest reductions are a further sign that competition is slowly returning to the mortgage market.

A number of other major mortgage lenders have cut their rates during November, including nationalised bank Northern Rock and Nationwide Building Society.

But despite the recent round of reductions, average mortgage rates are still higher than they were six months ago.

The average cost of a two-year fixed rate deal is now 5.02 per cent, up from 4.61 per cent in May but down from a recent peak of 5.24 per cent in August after lenders hiked their rates in response to rising swap rates, upon which the deals are partially based.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "There has been some movement in mortgage rates in recent days, with some rates going down and some of the smaller providers putting rates up.

"If you go back a few months rates were much better, but we are heading in the right direction."