Mortgage rates tumbling

Mortgage borrowers have not had a lot to cheer about this year as the tight market and continuing difficulties in the eurozone led to mortgage deals increasing in cost and criteria tightening.

In recent weeks that wind has changed. The announcement of the Funding for Lending Scheme brought some hope, offering lenders access to cheaper funding in return for growing the amount they lend.

General money market costs have also gradually come back down, after having spiked at the height of the uncertainty in Europe. That has enabled lenders to price their mortgage rates more competitively and there are real signs of improvement.

Five year fixed rates from some lenders have dipped below 3%, a record low for that type of deal. Encouragingly other lenders have shown that they have some appetite to lend and compete, with most rate changes now being a cut in price, especially when it comes to fixed rates.

That said the very lowest rates continue to be targeted at the lowest risk borrowers with large amounts of equity. The very lowest 5 year fixed deals all require at least 40% equity. They are also charging big fees. For example the new 5 year fix from Natwest at just 2.95% carries an arrangement fee of £2495.

However these are the kind of rates that will make some borrowers consider whether now is the time to lock into a deal that will give them security over the medium term at an interest rate that is highly unlikely to ever look like bad value.


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