Abbey cuts mortgage ratesIt shaves 0.2% off two-year fixed rate

29 August 2008

A for sale sign

Abbey today became the latest lender to announce it was cutting its mortgage rates in a further sign that competition is returning to the market.

The group is shaving 0.2% off its two-year fixed rate deal for people borrowing 70% of their home's value and 0.1% off its three-year fixed rate loan.

The move will leave rates on both deals at 5.69% for people who pay a £995 arrangement fee.

Low fee deals

The lender also announced that it was launching a new range of low fee deals on Monday for homeowners with a 40% deposit who are borrowings up to £250,000.

People taking out a two-year fixed rate mortgage from the range will pay a rate of 5.79%, while two-year tracker deals start at 5.94%, both with a £499 fee.

Abbey's announcement comes after Alliance & Leicester said it was cutting the cost of all but one of its mortgage products, reducing rates by between 0.1% and 0.55%.

Competing

The moves continue the recent trend among lenders to pass on reductions in wholesale funding costs to consumers as they once again compete for borrowers.

Figures released last week showed that the average cost of a two-year fixed-rate mortgage had returned to the level last seen in August 2007, before the problems caused by the credit crunch began to impact rates.

Financial information group Moneyfacts said the average rate for one of the deals was 6.59%, only fractionally above an average of 6.56% in August last year, and well down on a level of 7.08% in early July.

Arrangement fees

But despite the fall in rates, arrangement fees on the deals still remain higher than last year, while lenders continue to demand large deposits in order to secure their best rates.

The average mortgage arrangement fee is now £964, up from £803 in August 2007, while lenders will now advance an average of just 80% of a property's value, compared with 90% 12 months earlier.

Borrowers also now need a deposit of at least 40% in order to qualify for the best rates with four of the UK's top five lenders.

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