Secured Loans Lenders Cut Mortgage Rates

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Written by Mark Dawson, on 06-09-2008 09:48

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Three of the top mortgage lenders dropped their interest rates yesterday ahead of the Bank of England's base rate setting decision. Abbey, Lloyds SB and Cheltenham & Gloucester declared a reduction of up to 0.30%. It was the fifth reduction in the last month by Lloyds TSB. Skipton Building Society revealed that it was offering 95% per cent loans for first time buyers. This now means that the average cost of a Home loan is now at levels not seen since the start of the credit crunch. This can only be seen as good news as the number of secured loans approved in July rose slightly over the previous month. The reductions are as a result of the reduced swap rates, the rate at which the banks lend to each other, falling over the last few weeks.

The Monetary Policy Committee (MPC) of the Bank of England has decided to keep base rates at 5 per cent again this month which it has done since April, so what is driving the sudden reduction in mortgage costs?

The main reason is the recent fall in something called swap rates, the rates financial institutions charge when lending to one each other. These rose sharply in June, forcing up mortgage interest rates, but have now started to fall. Swap rates are now at their lowest for several months, fuelling the widespread cuts in fixed-rate mortgages.

There are additional factors driving down rates. Mortgage lenders are beginning to regain their confidence and are starting to offering lower rates than their competitors. The bad news is that the most competitive rates are only available to borrowers with large deposits or plenty of spare equity in their property. The higher the loan to value ratio (LTV), the higher the interest rate. Nationwide currently charges 5.78 per cent for a two-year fixed rate up to 60 per cent LTV for remortgages (with a £599 arrangement fee), rising to 5.88 per cent up to 75 per cent LTV and 6.33 per cent up to 90 per cent LTV. That means paying an extra 0.55 per cent if you borrow 90 per cent of your property’s value instead of 60 per cent. With the drop in property prices, people wanting to remortgage will have shrinking equity in their property, and will need to find a higher LTV loan.

These lower rates won’t last long. The next set of rates are likely to be more expensive. So get in quick now while stocks last.

Mark Dawson writes for Loan Arrangers, the website where you can find Personal Loans, and Tenant Loans at low rates. Bad Credit Loans are also available.

Last update: 08-09-2008 18:14

Published in : Finance, Loans

Keywords : home loans secured loans loans