Mortgage rates falling – for those with cash

Published on Friday 22 August 2008 23:11

AVERAGE mortgage rates are back to pre-credit crunch levels, but typical "best buy" deals remain higher, new figures out this week showed.

According to analysis by comparison website Moneyfacts, the average two-year fixed-rate deal is now 6.59 per cent, just above a 6.56 per cent average last August and down from a July peak of 7.08 per cent.

But rates on the best mortgage deals available are up by an average of 0.64 per cent from a year ago, a study of both fixed and variable rates by Edinburgh mortgage company mform found, despite a 0.75 per cent fall in the Bank of England base rate over the same period.

It said the average best buy mortgage deal is now 6.34 per cent, compared with the best available rate in August 2007 of 5.7 per cent.

The best fixed deals over two-years have risen from 5.51 per cent to 6.38 per cent, while variable tracker rate hikes have been more moderate, moving 0.41 per cent to 6.15 per cent, said mform.

However, the best rates are increasingly available only to borrowers with large deposits – with 20 per cent now the norm – while mortgage fees have risen. The typical mortgage arrangement fee is now 964, compared with an average charge in August 2007 of 803.

A reduction in the Bank of England base rate to 5 per cent means lenders are potentially making higher profits from mortgages than last year, due to a greater margin between the base rate and the average mortgage deal.

"The Bank of England can cut rates but, as we've seen over the past year, there's no guarantee this will translate into a lower true cost of mortgages, at least in the short term," said Francis Ghiloni, marketing and business development director at mform. "With rates creeping steadily upwards, the advice to borrowers looking for a new deal is clear – look to minimise your exposure to rate rises by ranking your mortgage on the true cost, with repayments as well as all fees."