Lenders cut their mortgage rates

House-hunters haven’t had much good news in recent months, with fewer homes on the market and hurdles to getting a mortgage. No surprise then that less than a third of all house purchases in May involved a deposit of less than 25 per cent. Many borrowers simply can’t build the large deposits demanded by lenders — and that has sent the rental market into overdrive.

But now there’s finally some good news. After banks raised fixed-rate mortgage deals expecting a base-rate hike, they are now dropping them. In recent weeks, Santander, Yorkshire Building Society, Northern Rock and Yorkshire & Clydesdale Bank have reduced their rates by up to 0.5 per cent.

“Average fixed mortgage rates are near the lowest levels ever seen,” says Michelle Slade at comparison site Moneyfacts. “The market is not expecting a bank base rate rise anytime soon and this reduced cost of raising funds is being passed on to borrowers through lower mortgage rates.”

But there is a caveat: “If the market starts expecting a base rate rise in the not-too-distant future, we could see rates rising again.” So home-hunters might be interested in organising a statement of principle on a current mortgage deal.

One decent option is Coventry Building Society’s new five-year fixed-rate mortgage. At up to 90 per cent loan to value (LTV), the rate is 5.99 per cent and the fee is low at £199.

“For first time buyers, the security of a fixed monthly repayment is a key requirement and helps with budgeting in those costly early years of home ownership,” says Andrew Hagger of mortgage comparison specialist Moneynet.

“The new Coventry mortgage offers excellent flexibility with unlimited overpayments allowed, plus you have the ability to move to a different product at any time without having to pay an early repayment charge. With interest rates predicted to rise next year, you could avoid a hike in repayments with a shorter deal.”

For buyers who have built up a larger deposit, a new five-year fixed deal at 3.99 per cent from Yorkshire Building Society may appeal. The rate is available for mortgages up to 75 per cent LTV and comes with a £995 fee. The society has another deal, for those wanting to pay less up front, with a 4.39 per cent rate, and a £95 fee. Both deals are available as an offset mortgage if required.