Borrowers to benefit from cut-price mortgage deals

As many lenders rush to bring lower fixed-rate to the market, millions of homeowners look set to gain a reprieve from rising monthly mortgage repayments. This comes about, despite the Bank of England’s recent decision to hold the base rate, as lenders reduce mortgage levels in anticipation of future interest cuts.

The resulting cheaper loans will benefit homeowners who face a sharp rise in repayments as a plethora of cheap fixed-rate deals comes to an end. Borrowers who were tied to a mortgage in 2003, when interest rates were as low 3.4 per cent, will end up paying more when their deal expires

Last month, the best two-year fixes on the market were held at 4.9 per cent meaning a homeowner with a £150,000 loan would need an extra £1,500a year to meet their mortgage repayments.

However, in the past week, lenders have launched new cut-price deals. The Newcastle’s 4.49 per cent offer means that a homeowner, who switches their £150,000 loan to them, will pay just £89 extra on their mortgage.

Swap rates are currently falling fast and this is likely to result in lower fixed-rate deals coming on to the market soon. The fall in rates might not be enough to be noticed by those coming off good two-year fixed deals, however, switching to another two-year deal should soften the blow of last year’s increases in the base rate.

As some economists predict a cut in interest rates in the coming months, homeowners may wonder if they’ll benefit from a fixed-rate deal where the will not benefit from fall in the base rate.

However, mortgage brokers Purely Mortgages, feel the value of choosing a fixed-rate deal is the piece of mind gained from knowing what the monthly repayments will be, especially beneficial for first-time buyers and older homeowners.

The great news for borrowers is the recent fierce competition in the mortgage market where fixed-rate deals are concerned. Halifax, the UK’s largest lender, this week reduced rates on its fixed deals, cutting its two-year fix from 5.29 per cent to 4.99 per cent. Recently the Leeds and Holbeck launched a ten-year fix at 4.99 per cent, with the Yorkshire Building Society following suit with a similar loan.

Currently lenders are undercutting one another in order to attract more business with other deals such as discounted tracker loans for those whose mortgages are linked to the base rate. There are many other competitive deals in the market place at present, so as always; it could really pay to shop around.

29/5/05