Foreign banks lead competition

Overseas banks are forcing much-needed competition in the UK mortgage market.

Dutch ING Direct, Spanish giant Santander and Bank of China have all reduced their interest rates in the past week, and a number of UK lenders have followed suit.

ING Direct - the eighth biggest bank in the world - entered the UK mortgage market some years ago but has not been actively attracting mortgage business for over a year. It has now come back to the market with a range of keenly-priced deals which have sent it straight to the top of the Best Buy tables.

Santander, the biggest bank in Europe, which owns Abbey, Alliance & Leicester and Bradford & Bingley, reduced its two-year tracker rate by 0.5% to 3.49% above Base Rate for borrowers with at least a 20% deposit.

Bank of China launched into the UK market last Autumn and is now offering a lifetime tracker mortgage priced at 2.3% above the Bank Base rate (0.5%), giving a highly-competitive pay rate of 2.8% to borrowers with a deposit of 25% or more.

However, borrowers must have a squeaky-clean credit record and attend a face-to-face interview in order to have a mortgage approved. On Monday, HSBC, which has grown its share of the mortgage market substantially in the last two years, and topped the Best Buy tables frequently in 2009, on Monday launched a lifetime tracker at 1.99% above the Base Rate, giving a pay rate of 2.49% , with a very small fee of £199 fee for borrowers with a deposit of 40%. Some mutual lenders followed the trend.

The UK's largest building society, Nationwide announced reductions to some of its rates this week, as did smaller societies Chelsea, Coventry, Newcastle and Principality. But borrowers have to act quickly in order to get the best deals. According to financial data analysts Moneyfacts, in September 2009 the cheapest deals stayed on the market for 24 days. Today they disappear after 19 days.