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News: Price drops on fixed rate mortgages

Wed, 13 Aug 08

The cost of fixed rate mortgages is coming down, Bank of England figures have revealed

Fixed rate mortgages came down in price last month for the first time since February.

Statistics for July show that during the month, the average two-year deal with a 25% deposit had an interest rate of 6.3%, compared with 6.5% in June.

This fall corresponds with a decline in swap rates, potentially indicating that the peak has been passed and that the trend is now downward.

Fixed rate mortgages still cost more than they did a year ago, but are now down significantly from the eight-and-a-half-year high seen in June.

Experts also said there was increasing choice in the market as the mortgage drought starts to ease. Rates are coming down despite Bank of England policymakers keeping the bank base rate on hold for the fourth month in a row, at 5%.

A raft of high street lenders have been cutting rates in the past few weeks, including Halifax, Abbey, Royal Bank of Scotland and its NatWest subsidiary.

A further move was Abbey's recent announcement of more cuts to the price of its mortgage products. The lender said it was trimming the cost of its five year fixed rate products by 0.3%, while also reducing its 75% loan-to-value tracker deals by 0.1%.

Abbey is also planning to cut the fees on its two and three year fixed rate mortgages.

The Council of Mortgage Lenders (CML) has said that the popularity of fixed rate mortgages is ever increasing. In its release of statistics covering June,the CML said that the proportion of the entire mortgage market being made up by fixed rate mortgages had risen from 66% in May to 69% in June.

The CML also suggested that this trend looks set to continue as lower swap rates allow lenders to lower the cost of their mortgages.

Another reason fixed rate mortgages are set to grow in popularity is the protection that they afford against the Bank of England's possibly increasing the base rate.

Pressure on the monetary policy committee to raise the rate may increase following recent news that the consumer price index measurement of inflation has climbed to 4.4%.

 

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