Interest rates on fixed-rate mortgages have fallen this month as lenders compete for borrowers’ custom.
Five-year deals, in particular, have benefited from price reductions with some of the biggest lenders making significant cuts to these products.
According to Moneyfacts.co.uk, Barclays, Coventry Building Society and Santander have slashed their five-year mortgage rates by 0.07%, 0.10% and 0.24% respectively.
Until now, lenders have been focussing on attracting customers who need high value loans of up to 95% of the property’s value – which are typically aimed at first-time buyers.
As such, two-year deals were experiencing rate drops in the earlier part of this year. But these two year deals have seen interest rates stabilise and lenders are now concentrating on attracting those customers who have bigger deposits or more equity.
Darren Cook, financial expert at Moneyfacts.co.uk, said: “Since the beginning of this year, our analysis shows that the strongest rate competition appeared to take place at the maximum 95% loan-to-value (LTV) market, with lenders attempting to attract potential first-time buyers, which are considered the lifeblood of the mortgage and property market.”
He added: “Mortgage lenders may now feel that higher LTV tiers – often considered riskier – may have been cut enough and some larger mortgage lenders are focusing on decreasing rates at the lower-end tiers, with the view of retaining existing mortgage business rather than seeing this business drift away.”
Fixing for more than five years?
Earlier this month, Moneyfacts reported the choice of mortgages in the 10-year fixed-rate market was at a record high.
It came as Newcastle Building Society offered a 10-year deal to the market and as Virgin Money unveiled a mortgage which allowed borrowers to lock in for 15 years.
Rachel Springall, finance expert at Moneyfacts, warned anyone considering taking out these longer terms deals that locking in for this period of time was a big commitment and, therefore, borrowers must feel confident their circumstances were unlikely to change to avoid the expense of refinancing earlier.
She added: “There is a much larger choice of mortgages within the five-year fixed market and these should ideally be considered as an alternative.
“As with any mortgage, it is important that borrowers weigh up the overall true cost of any deal and make every attempt to overpay their mortgage to reduce the amount they owe – especially if they lock into a low rate.”
