Lenders offer lower interest rates

Published:
12 August 2008
Topic:
News,Money,Mortgages

The price of fixed-rate mortgages offered to some borrowers dropped last month for the first time since February, according to figures from the Bank of England.

The average interest rate on a two-year deal stood at 6.36% in July for borrowers with a deposit of 25% of the property value, down from 6.46% in June, the Bank's latest data indicated.

Fixed-rate mortgages still cost more than they did a year ago, but are now down significantly from the eight-and-a-half-year high of 6.6% seen in June.

Rates are falling despite Bank of England policymakers keeping its base rate at 5% for the fourth month in a row.

The falls are being seen in response to significant declines of nearly 1% in swap rates, upon which the loans are based.

Swap rates tend to track the rate at which banks lend to each other, known as the Libor, which soared to sky high levels when the credit crunch seized wholesale money markets, but have since also eased.

Borrowing became more expensive as lenders themselves faced higher funding costs.

But interest rates also rose as lenders that were struggling to raise finance began pricing themselves out of the market.

Copyright © PA Business 2008

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