Drop in Mortgage Rates

Nationwide has announced that it has plans to cut the price of its fixed rate mortgage deals by up to 1%.

The building society, which is the UK's third-largest mortgage lender, will be reducing rates on its two, three and five year fixed-rate deals from Wednesday this week.

Recent reductions in swap rates have enabled us to cut the price of our fixed-rate mortgage deals," says Matthew Carter, divisional director of mortgages at Nationwide.

"The financial climate remains volatile so we will continue to monitor market conditions, offering lower mortgage rates and deals where it is prudent to do so," he added.

The actual cuts which Nationwide re offering vary, in the case of two-year fixes, the rate falls to 4.39% from 4.88% for customers with a 40% deposit who are willing to pay a £995 fee, or to 5.09% from 5.38% without a fee.

However, for customers with a 25% deposit who sign up for a three-year fixed-rate mortgage with a £995 fee there is an even bigger drop the rate is 4.88%,down from 5.88%.

The cuts reflect the fact that money market swap rates, which are used to calculate fixed-rate loans, have fallen.

Louise Cuming, head of mortgages at moneysupermarket.com, "The fall in rates has certainly helped many borrowers - who can now either take the cut in expenditure or keep their payments at the same level and put some sorely needed extra equity into their homes.

She added that "Mortgage overpayments can also be a real boon for anyone planning for retirement who doesn't have the safety net of a large pension pot in place. By reducing the term of the deal with overpayments now they will significantly ease their outgoings later in life."

Michelle Slade of Moneyfacts.co.uk, said, "Lenders have been quick to point out that the increased margins are as a result of the increased risk that they faced."

However, she continued, rates are now slowly starting to creep down as "Now that the Government has stepped in to reduce that risk......the banks start to lend again, but that the reduced risk is passed on with lower rates being offered."

With rates falling as a result of monetary support and pressure from the government, forcing banks to lower their rates to tempt customers in, many are considering if now may be a good time to take on a long term fixed rate deal.

As it stands interest is at a record low, prompting many to believe that now is the time to enter into a fixed rate deal which will see them through times of high interest.

Eleanor Ross, at Lloyds TSB,certainly thinks so, as she explained mortgage rates are now below the ten-year average of 5.84 per cent.

"We are heading to the bottom of the market, so it could be an idea to take advantage of low long-term rates and lock in as soon as possible," she said.

She explains the Swap rates - at which fixed-rate mortgage deals are set - are already factoring future Bank of England interest rate cuts, so further drops to long-term deals were unlikely.

"Rates on long-term fixed deals could fall by another couple of basis points, but not a huge amount, so it is not worth waiting," she says.

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