Average mortgage rates have fallen by up to 0.56 per cent since the Funding for Lending scheme was launched at the beginning of August.
Figures compiled by Moneyfacts.co.uk for Mortgage Strategy show that average rates on five-year fixed mortgages at 60 per cent LTV have fallen the furthest, down from 4.35 per cent in June to 3.79 per cent yesterday.
There has been minor decline in nearly all higher LTV fixed rates except for at 100 per cent which remains unchanged at 5.98 per cent and at 80 per cent LTV. At 95 per cent LTV, average rates are 0.09 per cent lower than at the beginning of June and currently stand at 5.61 per cent.
As in August, average fixed rates at 80 per cent LTV are currently higher than for the start of June and stand at 4.71 per cent compared with 4.59 per cent for June 1. This is believed to be due to more lenders having introduced new variable products at 60 per cent to the market.
Cuts to fixed rates on 75 per cent LTV mortgages have gained the most ground in recent weeks. Rates had dropped by 0.16 per cent between June 1 and August 10, to 4.45 per cent but had fallen a further 0.22 per cent to 4.23 per cent by September 24.
The Bank of England last week revealed that 13 financial institutions, which collectively account for around 73 per cent of UK lending, have signed up to the Funding for Lending Scheme.
The scheme, which was launched on 1 August, allows banks and building societies to exchange existing loans for Treasury bills, on which they will pay an interest rate of 0.25 per cent over the next 18 months.
Aldermore, Barclays, Hinckley & Rugby BS, Ipswich BS, Kleinwort Benson, Leeds BS, Lloyds Banking Group, Monmouthshire BS, Nationwide BS, Principality BS, RBS Group, Santander and Virgin Money have all been confirmed as participants in the scheme.
The BoE has released details of all participants’ base stock of loans as of 30 June to serve as a benchmark for measuring the scheme’s success.
Monetary policy committee member Paul Fisher says: “The Bank cannot give details of an individual firm’s previous or new lending plans. It is for each of them to explain how the FLS enables them to support the economy. Most have already announced reductions in some interest rates or a loosening of other terms and conditions. Some will respond by lending to firms that they would previously not, because they can now earn a return that compensates for the extra risk. All these approaches will help.
“We cannot expect every bank in the FLS to increase its stock of lending to the real economy over the 18-month period – the crucial impact will be whether the FLS enables them to lend more than they would have done in its absence.”
Fisher adds that the hope is for new entrants to step in and pick up where the major banks cannot.