Lenders slash mortgage rates
Mortgage lenders have embarked on a fresh round of rate cuts which suggest that competition is slowly returning to the mortgage market.
Both Abbey and Nationwide have cut the price of both fixed and tracker-rate mortgage products, although the best rates are still reserved for those with larger deposits.
Nationwide has cut the rates on some of its two, three and five-year fixed-rate mortgages by up to 0.25%. Its three-year fixed-rate mortgage deal at 75% loan to value has fallen from 6.23% to 5.98%, while its two and three-year tracker rates have also been cut by up to 0.10%.
Abbey has followed on from a previous round of cuts announced last week, reducing its fixed-rates by up to 0.10%. Its two-year tracker mortgage at 75% LTV is now priced at 5.89%, while two and three-year fixed-rate deals start from 6.19%.
Borrowers looking for smaller loans can also benefit from low fees, with Abbey announcing a new fixed-rate deal for loans under £150,000 or less available for a fee of £549.
“There is certainly more competition returning to the mortgage market, although the best rates are still aimed at those with a lower risk profile,” said , spokesperson for broker London & Country. “However with the big lenders jockeying for position this means that more lenders will be forced to follow suit. In fact today’s announcement is simply continuing a trend that we have seen for the past two weeks.”
Earlier this week Halifax cut the cost of 30 of its mortgage products, reducing the interest on one two-year fixed rate product by 0.38%. Its sister company, the Bank of Scotland, cut rates on 36 deals by up to 0.70%.
“But it’s not just big lenders vying for more mortgage business,” added Hollingworth. “Smaller building societies such as Market Harborough and Principality are getting in on the act too, so it’s pleasing to see lenders both big and small begin to start pricing themselves into the market.”
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.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.