Mortgage rates settle after crunch

The race by lenders to win back customers has seen the cost of two-year fixed-rate mortgages return to pre-credit crunch levels.

The average rate for a two-year fixed rate loan is now 6.39%, about the same level as before the credit crunch first surfaced in July last year, although the Bank of England base rate was 0.75% higher then.

Rates on the popular two-year deals hit 7.08% at the beginning of July, but since then lenders have made a prolonged series of cuts as competition returned to the market.

Nine of the UK's top 10 lenders have reduced the cost of a two-year fixed-rate loan by an average of 0.52% since July 11, with three lenders also cutting their arrangement fees.

One of Britain's biggest mortgage lenders, Halifax, has led the way, slashing its two-year fixed rate deals by an average of 1.28%, while it has also reduced arrangement fees by about £301.

Bradford & Bingley has made the next biggest reduction at an average of 0.76%, followed by Lloyds TSB's lending arm Cheltenham & Gloucester at 0.72%, although both of these groups have increased their arrangement fees, raising them by £83 and £627 respectively.

Copyright © PA Business 2008

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