Mortgage Rates Drop as Lender Fight to Get Customers

by Mark Johnston

Lenders seem to be going all out to tempt borrowers to re-mortgage. New reports are showing that mortgage rates are falling as lenders compete in a difficult market. It seems the first time buyer market has dried up so lenders are going after those looking to re-mortgage.

Thousands of borrowers are due to finish their current deals and will be moved onto their bank or building societies standard variable rate (SVR). Due to the low bank of England base rate of just 0.5%, many Britain’s are staying on their lenders variable rate. This was once seen as the more expensive rates but some are seeing this as their best or only option.

The report published by the Bank of England shows that the average cost of a tracker mortgage in the UK dropped to its lowest point of 3.5%. A typical 2 year fixed rate mortgage based on a loan to value ration of 75% was around 3.72% which is the lowest rate since it started to be tracked back in 1995. Even the cost of a 5 year fixed rate mortgage dropped by 20% to 4.85%.

Those that have found their current deal coming to an end and have decided to remain on the standard variable rate (SVR) should consider that there are some fantastic opportunities for borrowers to take advantage of. It’s interesting to note that a report out this week showing an increase in swap rates suggested that fixed rate mortgages would be on the increase but the Bank of England’s data has proven otherwise.

The reduction in rates seems to be purely based on stiff competition to try and get borrowers on standard variable rates locked into a mortgage deal. Low standard variable rates have created borrower inertia so lenders are having to compete to get customers onto their deals. This has created some healthy competition which has led to some interesting products and great offers. In the past lenders have sold fairly dull and uninteresting products but many are now seeking new creative ways of attracting customers by being flexible and innovative.

The telephone bank, First Direct has launched a tracker mortgage that tracks the base rate at just less than 2 percent. Richard Tolchard, Senior product manager pointed out that savvy borrowers could save money by switching to a First Direct mortgage. He pointed out that the Council of Mortgages Lenders (CML) had recently released a report that showed that offset mortgages had risen and now accounted for 11 percent of all new mortgage approvals.

First Direct’s sister company, HSBC is currently offering a tracker mortgage as 1.69% over the Bank of England base rate of 0.5% giving a great overall rate of 2.19%. HSBC is only charging a very reasonable £99 application fee although the down side is that borrowers require massive sixty percent equity as the loan to value to a mighty 40%.

Michelle Slade, spokeswoman for Moneyfacts, said: “We are seeing a bit more competition back in the market as lenders want to do more lending. They are trying to kick-start the remortgage market. Many people are on low SVRs and have no reason to move.”

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