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Fixed rate joy for FTBs?

Jaimie Kanwar

The cost of fixed-rate mortgages deals hit an eight-year high in June before falling back in July.

Figures from the Bank of England show that the average rate for a borrower with a 25% deposit was 6.6% in June, up from 6.26% in May. That was the highest average rate for these popular types of mortgage since February 2000.

However, there has been a flurry of rate cuts from mortgage lenders in the past month, bringing down their cost. "Lenders are starting to bring their rates down," said Aaron Strutt of mortgage brokers Chase de Vere.

"Since the Nationwide cut its rates others have been bringing their rates down too."

July saw a series of small cuts in mortgage rates by the main lenders, starting with the Nationwide, swiftly followed by Abbey and the Halifax. Mr Strutt estimates that the average two-year fix now costs 6.5%, across all lenders.

Funding problems

The credit crunch has made banks become much warier about lending to each other and so the cost of doing so on the financial markets has generally been rising, pushing up the cost of financing fixed-rate lending to the public.

As a result, interest rates on two-year fixed-rate deals, for customers with a 25% deposit, rose from 5.74% in February to their peak in June. But in the past month the cost of borrowing between lenders, known as the swap rate, has dropped back.

Ray Boulger, of mortgage brokers John Charcol, said that some lenders' cuts in the past month had been cumulatively quite significant. "Some lenders have been cutting their rates more than once a week, so overall the cuts have been quite big," he said.

"The most important thing though is the cost of the best deals; but I have no doubt that the average rate for July will be lower than for June," he added.

The Bank of England has cut interest rates once last autumn and twice this year, which has been reflected in the average variable rate from all UK lenders falling from 7.74% last October to 6.92% this June.

But fixed-rate mortgages have, until very recently, been moving in the opposite direction.