Lenders dropping fixed rates to boost market

Fixed rate mortgages priced below 5% are back as lenders cut rates in a bid to boost the market, research from mform.co.uk shows.

Its analysis shows fixed rates now rank as the most competitive mortgage deals rated on true cost.

The top 20 most competitive deals for £150,000 loans show 12 fixed rate offers compared with eight discounts and trackers.

mform.co.uk shows the recovery in fixed rates is a dramatic turnaround from three months ago when deals at less than 6% disappeared and discount and tracker deals were the most competitive.

But the online mortgage company is warning that the -5% deals have low headline rates but not the lowest overall costs as they come with hefty arrangement fees of up to £3,850 on a £150,000 deal.

It is urging borrowers to search the whole market focusing on discounts and trackers as well as fixed rates as the likelihood of Bank of England rate cuts makes variable deals potentially more competitive.

Two-year discounts start as low as 4.99%, the same lowest rate as similar trackers.

However the average true cost including all fees of the most competitive two-year discounts is around £200 a year lower than for trackers.

Eamonn Rice, chief executive of mform.co.uk, says: “The sudden switch to more competitive fixed rates demonstrates that the mortgage market continues to be volatile. In June lenders were wary of fixed rates but now they’re cutting rates.

“Fixed rates are back but eye-catching deals at less than five per cent will often come with massive fees and borrowers need to be careful. The market changes day by day.

“Discounts aren’t dead but there has been a marked decline in the number of products on the market available direct to the public. This is particularly true for the biggest lenders who are largely absent from this market.

“In the continuing market uncertainty trackers are a good bet for lenders as the funding costs are not fixed. Life time trackers with small exit charges are dominating at the moment, particularly for those seeking a deal longer than three years.

Just 70 discount variable products are currently available direct to the public with the majority either two or three-year deals.

By contrast mform.co.uk’s figures show there are 73 tracker products on the market including terms longer than five years.

The best two year-fixed rate deals start at around 5.3% with arrangement fees of under a £1,000. Over the two year life of the deal the best of these would save the homebuyer around £2,500 against buying one using a headline fixed rate below 5%. That is the value of searching for a mortgage using the true cost.