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Mortgage costs receded to pre-crunch levels

Friday, 22 August 2008 4:19 PM

Following a week of dramatic cuts in the price of fixed-rate borrowing, the cost of a mortgage in the UK has now fallen back to levels last seen in August 2007.

Royal Bank of Scotland led the way, offering a new two-year fixed rate deal at 6.19 per cent, closely followed by Abbey, who are now offering a 5.89 per cent over the same period.

Announcements from Yorkshire Building Society, Mansfield Building Society, and Britannia Building Society and Leeds Building Society - also confirmed cuts in lending costs.

As a result the average rate on a two-year fixed deal has now fallen 6.59 per cent - almost the same as 6.56 per cent in August 2007 and down from 7.08 per cent in early July, according to research from MoneyFacts.co.uk.

However, this fall has partially been accounted for by a rise in fees.

MoneyFacts research finds the average mortgage arrangement fee is now £964 compared with £803 in August 2007.

There has also been a sharp fall in the number of products on offer, with lower loan-to-value (LTV) ratios increasingly common.

For example, last summer 33 lenders were offering borrowers 100 per cent mortgages compared with just two lenders in August this year.

"Over time the mortgage market should continue to improve from its current position," explained Michelle Slade, analyst at MoneyFacts.

"The number of products will steadily increase and rates will lower with increased competition between lenders.

"However, it will be a while before lenders regain a healthy appetite to lend with the maximum LTVs on offer largely determined by the future decline in property values."

Chris O'Toole

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