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January 21, 2008

5% mortgages to make a return

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by Kay Mitchell

5% mortgages to make a return

A range of new mortgage products are on offer for 2008 including the 5% mortgage which was popular a few years ago.

With doom and gloom surrounding the property market currently, this could be good news for homeowners as lenders offer a selection of new fixed rate mortgage deals.

Recently, 2-year fixed rate mortgage offers from Yorkshire Building Society, Leeds Building Society, Newcastle Building Society, First Direct and Giraffe Money, have all come in below 5%.

These offers come in spite of warnings of the credit squeeze brewing up a storm for homeowners and banks announcing further losses as a result of their exposure to the US sub-prime mortgage market.

A spokesperson for mortgage broker, John Charcol, said that the best fixed rates on offer should be about to fall slightly as the money markets loosen up a little bit.

The spokesperson said the ray of light for borrowers is that 2-year swap rates (on which lenders base fixed rate prices) have dropped below the 5% mark in anticipation of another rate cut, so fixed rates are now becoming much more competitive.

Furthermore, trackers will prove best value for most as interest rates are widely expected to fall to 5% or lower this year.

Recently, best buy fixed rates have fallen and it is widely expected that they will fall even further, but not every borrower will see the benefit of lower costs and analysts have warned that some will experience the reverse.

With the effects of the US sub-prime mortgage crisis having an impact on banks, lenders are no longer offering those considered riskier borrowers the good terms they could secure over recent years.

Consequently, those with poor credit history and low levels of equity in their home will find it difficult to remortgage or get a homebuying loan.

Research shows that with a selection of mortgages currently falling below the 5% mark, borrowers should avoid being enticed by headline grabbing figures and ensure they do their homework.

If the bank rate is reduced further in the next few months then the sub-5% mortgage could make a return but homeowners are urged to consider their options carefully.

Moneysupermarket.com, the price comparison site, has established that the average fixed rate, including sub-prime borrowers, has increased to over 7% as lenders re-calculate risk for those with poor credit histories.


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