Lenders cut mortgage rates
Three of Britain’s biggest mortgage lenders have cut interest rates on selected mortgage deals.
Halifax is cutting the cost of its tracker mortgages for existing customers by an average of 0.12%, while Nationwide will next week cut the price of some of its fixed-rate and tracker mortgage deals by up to 0.27%. Abbey is today (Friday 4 July) reducing rates on some of its fixed and tracker mortgage deals by up to 0.20%.
Abbey’s rate cuts, which only apply for borrowers able to put down a deposit of at least 25%, include a 0.14% price cut on two-year fixed deals to 6.44% and a 0.2% reduction on two-year trackers to 6.04%.
A spokesman for the bank says: "Abbey's strength in the mortgage market allows us to continue to offer competitive deals."
Despite cutting its tracker deals, Halifax is also increasing the cost of its fixed rates by 0.23%.
The cuts come about a month after the majority of lenders implemented mortgage rate rises, in response to the rising cost of funding. In June the cost of funding for fixed-rate mortgages (known as swap rates) rose to over 6%.
At the time Abbey increased prices on its five-year fixed rate range by between 0.07% and 0.26%, and upped rates on two and three-year fixed products by between 0.15% and 0.56%.
Libor, which is used to price tracker rate mortgages, is currently sitting at the 5.9% mark although swap rates remain above 6%. However, they have started to fall slightly.
David Hollingworth, mortgage specialist at London & Country, says that if Libor and swap rates continue to fall, then more mortgage lenders could start to reduce rates.
But he adds: "Libor and swaps are very volatile so nothing is certain. These lenders putting down rates could be a response to cheaper funding, or it could just be that they have more appetite to lend and want to be more competitive."
Hollingworth adds that the cuts position Abbey and Nationwide as offering some of the most competitive trackers on the market.
Abbey now offers a two-year tracker deal through mortgage brokers at 5.69% with a fee of £1,999 up to 60% of the property, or 5.79% up to 75%. Nationwide, meanwhile, has a two-year tracker at 5.78% with a £1,499 up to 75%.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
The London Inter-Bank Offer Rate is the rate at which banks lend to each other over the short term from overnight to five years. The LIBOR market enables banks to cover temporary shortages of capital by borrowing from banks with surpluses and vice versa and reduces the need for each bank to hold large quantities of liquid assets (cash), enabling it to release funds for more profitable lending. LIBOR rates are used to determine interest rates on many types of loan and credit products such as credit cards, adjustable rate mortgages and business loans.