Home Loan Lenders Cut Mortgage Interest Rates
This is the fifth cut in the last month by Lloyds TSB. Skipton Building Society also annouced 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 before the credit crunch began. This can only be seen as good news as the number of secured loans approved in July rose slightly over the previous month.
The Monetary Policy Committee (MPC) of the Bank of England has decided to keep the base rate at 5 per cent again this month and has done so since April, so what is driving the sudden reduction in mortgage costs?
The main reason is the recent reduction in something called swap rates, the rates financial institutions charge when lending to each other. These rose sharply in June, driving up mortgage interest rates, but have come down again. Swap rates are now at their lowest for several months, fuelling the widespread reductions in fixed-rate mortgages.
There are additional factors driving down rates. Mortgage lenders are beginning to regain their confidence and are offering lower rates than their competitors.
The bad news is that the best rates are only available to people with large deposits or plenty of spare equity in their property. The greater the loan to value ratio (LTV), the more expensive the mortgage. 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 looking to remortgage will have reducing 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 buy now while stocks last.
