Fixed rate deals return to pre-crunch levelsBut mortgage fees still rising

24 August 2008

The cost of two-year fixed rate mortgages is back at the level it was in August last year when the credit crunch first began to bite, figures showed today.

The average rate for one of the deals is now 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, according to financial information group Moneyfacts.co.uk.

Arrangement fees still high

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.

The figures came as Nationwide Building Society became the latest lender to cut the cost of its deals, with the announcement that it is reducing its fixed rate loans by up to 0.2% next Thursday.

Minimum deposits rising

But at the same time the group followed the lead of a number of other major lenders and increased the size of the deposit borrowers need to qualify for its best deals from 25% to 40%.

The move means a homeowner with a 40% deposit who is remortgaging, and pays a £599 arrangement fee, can get a two-year fixed rate deal of 5.78%.

But while the cost of tracker deals for people borrowing just 60% of their home's value have fallen by 0.1%, those borrowing 90% will have to pay 0.05% more and tracker rates for people with just a 5% deposit are 0.1% higher.

Interest rates not expected to rise

A flurry of lenders have cut their rates in recent weeks in a sign that competition is returning to the market for borrowers with largest deposits.

The reductions follow a steep fall in swap rates, upon which the deals are based, as a result of expectations that interest rates will not be increased again.

But despite two-year fixed rate mortgages returning to their August 2007 levels, other types of loan are still higher than they were a year ago.

The average cost of a three-year fixed rate deal is currently 6.88%, up from 6.54% 12 months earlier, while five-year fixed rate loans currently average 6.72%, compared with 6.59% in August last year.

Fewer mortgage deals available

The number of different mortgage products available also still remains well down on its August 2007 level, when their were 13,027 deals on the market, compared with just 3,748 now.

Eleven lenders were prepared to advance more than the value of a property a year ago, something no-one will do today, while the number of 100% mortgages available has fallen from 33 to only two, both of which are guarantor mortgages.