Cost of fixed-rate mortgage falls (From Ilkley Gazette)

Cost of fixed-rate mortgage falls

10:50am Wednesday 13th January 2010

© Press Association 2009

The cost of fixed-rate mortgages fell during December as competition in the market began to increase, figures have shown.

The average interest rate charged on a two-year mortgage for someone with a 25% deposit dropped by 0.04% during the month to 4.06%, according to the Bank of England.

The rate was the lowest since May 2009, and well down on both the recent peak of 4.47% seen in September and the 4.77% charged on the average two-year fix 12 months earlier.

There was a similar drop in the average rate for a five-year fixed-rate deal for people borrowing 75% of their home's value, with this falling from 5.71% to 5.67%.

But despite the interest rate cuts seen in 2009, the cost of longer term fixed-rate mortgages remained higher than they had been in December 2008, when they averaged 5.28%.

The falls were driven by an increase in competition in the fixed-rate mortgage market during December, after the cost of the loans had risen steeply during the summer on the back of higher swap rates, upon which they are partially based.

Most of the major lenders cut the interest they charged on fixed-rate mortgages during the month, particularly for people borrowing higher loan to value ratios.

The increase in competition has continued into this year, with financial information group Moneyfacts reporting on Monday that there had been a 7% jump in the number of different mortgages available since January 1.

It also reported a fall in the average interest rates charged, despite swap rates increasing during the period.

But while the cost of fixed-rate mortgages fell during December, the rates charged on tracker deals increased for the second month in a row to 3.91%, up from 3.89% in November.