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Fixed rate cost at 22 year low

Written by:
07/10/2010
The cost of fixed rate mortgages has fallen to its lowest level since 1988.

According to figures from financial information group Moneyfacts.co.uk, the average cost of a two-year fixed rate mortgage fell by 0.08% to 4.4% in September.

Similar falls were recorded in the cost of three- and five-year fixed rate deal, which dropped to an average of 5.04% and 5.36% respectively.

The decreasing costs of fixed rate funding will come as welcome news to mortgage borrowers, although Moneyfacts warns that the current record lows are expected to be short lived, as banks are expected imminently to embark on a new round of criteria-tightening.

The price of fixed rate mortgages has fallen as the ‘swap rates’ which dictate the the cost of fixed funds to the banks have themselves decreased sharply.

In October 2008, the cost of two-year swap rates (which largely determines the price of two-year fixed rate mortgages) was 5.26%. Today is it just 1.29%.

The latest improvement in the cost of two-year fixed-rate deals was driven by a slight fall in the margins lenders are charging on the loans during September.

However, Moneyfacts emphasized that there is still a big difference between the interest rates charged to borrowers with big deposits compared to those with smaller amounts to out down.

It said the the best two-year fixed rate deal currently available is charged at 2.89% for people with a 40% deposit, compared to 5.19% for people needing to borrow 90% of a property’s value.

However, there was some good news for these borrowers, with the number of mortgages offered to people with only a 10% deposit rising by nearly 7% during the month to 206, while there was also a small rise in the number of deals for people with just 5% to put down at 26.

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