by Mark Johnston
Many mortgage lenders have started to cut their fixed rate mortgages even though the Bank of England have kept the base rate at 0.5%. A recent report suggesting the rate could be held at the historic low could well be to blame although many industry analysts still predict a rise either by the end of this year or during the first half of next year.Nationwide and Coventry building societies both reduced rates last week following cuts by banking giant HSBC who recently launched its cheapest ever five year fixed rate. Mortgagerates.org.uk believe that lenders are cutting their rates to try and get borrowers off low standard variable rates (SVR) and onto fixed term mortgages.
Michelle Slade at data analyst Moneyfacts suggests that: “Millions of customers who have come off short-term fixed-rate and tracker deals in recent years have gone on to their lender’s standard variable rate as it has been cheaper than fixing again,”
Nationwides base mortgage rate is just 2.5% which is a lot lower than many of its current mortgage offerings. Lenders are hoping that the new cuts will temp some customers to fix their mortgages even though the rates are higher. Fixing now may cost more but would give cash stuck borrowers piece of mind by setting their repayments as a specific level which would allow easier budgeting.
Nationawide has cut its fixed rates by up to 0.3 of a percentage point. the building societies two-year fixed-rate loan 4.98 per cent. for homebuyers with at least 15 per cent equity, now costs 4.69 per cent.
Coventry building society’s two-year fix rate for those with a minimum of a 40% mortgage was cut from 3.15% to 3.05%. HSBC on the other hand is offering their five year 60% loan to value mortgage at a very attractive 3.95% requiring a 40% deposit and a £599 arrangement fee.
This recent move by HSBC came at the same time as the bank announced that it increased its share in the mortgage market by only 3% in the first half of 2010. The bank announced pre-tax profits of £7 billion which included profit from its £60 billion of mortgage lending in the UK.
HSBC blamed borrowers staying on standard variable rates instead of moving to new products or providers.
The majority of HSBC’s mortgage portfolio consists of owner occupiers. Just about all its new business was with borrowers who also hold a current of savings account with the global banking group. The bank also announced that some of its profit was from loan impairment charges and delinquencies which came in a lot lower than it was expected.
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