Fixed-rate home loans fall

The cost of a fixed-rate mortgage has fallen over the past 12 months despite two base rate rises, research showed today.

The best five-year fixed-rate loan available on the market is now just 4.69%, 0.9% lower than the best rate that was around 12 months ago, according to estate agent Your Move.

The group said the decline came despite the Bank of England raising interest rates by 0.5% to 4.75% during the same period, and the average standard variable rate mortgage increasing by 0.42% to 6.59%.

Last week a number of lenders, including Britain's biggest mortgage lender Halifax, announced they were cutting their fixed mortgage rates by up to 0.3%.

The move followed a fall in swap rates, the rates at which City institutions lend money between themselves, following speculation that the next movement in interest rates was likely to be down.

Jon Round, remortgage analyst at Your Move, said: "There has been a dramatic turnaround in the mortgage market in recent months.

"A year ago fixed rates climbed rapidly as fears over inflation led the money markets to push up their expectations for where base rates would go.

"This has reversed in spectacular style and there is no sign that the Bank of England is going to increase rates any time soon. This change has brought fixed rates down rapidly, even below the level of discounted variable rates."

Meanwhile mortgage broker Mortgages for Business said buy-to-let mortgage rates were comparable with rates for a standard residential mortgage for the first time since the specialist loans began to appear in 1992.

It said five-year fixed buy-to-let loans were now available for 4.99%, while three-year ones started at just 4.89%, which was actually cheaper than the rates offered by many lenders for residential mortgages.

The group attributed the fall to fierce competition between buy-to-let lenders following the entry into the market of a number of niche lenders, such as the Mortgage Platform and Mortgage Trust.

It said it was only within the last four to five months that the more established lenders had responded to the rates offered by these firms.

Jonathan Moore, marketing manager at Mortgages for Business, added: "The decline in buy-to-let towards the end of 2004 has also left many lenders short of their targets.

"Most lenders will have a set lending pool for the year and they need to sell their money to hit their targets and many have found the only way to attract additional demand is to offer a lower rate."