Mortgage rates continue to fall but large deposits still required

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by Kay Murchie

Several lenders in the last few weeks have been cutting mortgage interest rates and last month, price comparison website, Moneyfacts reported that mortgage rates were back to the same level they were at the start of the credit crunch

The latest lender to cut mortgage interest rates is Abbey. From tomorrow, the lender, owned by Spanish bank Santander, is reducing the rates for new borrowers on two, three and five year fixed-rate mortgages by up to 0.3%.

However, whilst this sounds like good news for prospective buyers, according to Ray Boulger of mortgage broker, John Charcol, those with a deposit of less than 10% will still struggle to secure a mortgage.

Furthermore, arrangement fees are still higher than they were at the start of the credit crunch.

Earlier this week, Abbey Mortgages reported that in the last six months demand for three-year fixed rate mortgages has tripled.

Research by Abbey claims that one fifth of homeowners would opt for a three-year fixed rate deal compared to 9% who would choose a two-year fixed rate deal while 8% would opt for a five-year fixed rate deal.

According to Abbey, the fall in demand for five-year fixed-rate deals from a high of 22% last month indicates that borrowers are now more optimistic of mortgages remaining affordable over the short-term, probably due to several lenders reducing their rates.

The credit squeeze has meant that lending has all but dried up and Moneyfacts also recently reported that there are now 3,748 mortgage deals available compared with 13,027 mortgage products last August.

In related news, it was announced earlier today that the Bank of England’s Monetary Policy Committee (MPC) had opted to keep UK interest rates on hold at 5%.