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Mortgage Lenders Target Short Term Fixed Interest Rate Deals

Personal_Finance / Mortgages Dec 03, 2009 - 05:52 AM GMT

By: MoneyFacts

Personal_Finance

Lenders have become accustomed to the post banking crisis world: indeed, the signs from the mortgage market indicate that credit conditions are easing and that lenders are more willing to lend.


In the last eight months, whilst bank base rate has been kept on hold, the total number of residential mortgages available has increased from 1,209 to 1,624, the majority of which being two year fixed rate deals.

Average rates on two year fixed deals continue to see significant falls, standing at 4.93% today.

Rates remain less favourable on longer term deals, where the average five year fixed stands at 6.15%. The average three year rate continues to increase, standing today at 5.60%.

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented: “In such uncertain times, borrowers and lenders alike seem to prefer shorter term deals, where changes can be made relatively quickly if market conditions change dramatically.

“If lenders maintain the increased margins they have placed on mortgage deals, this short term view is likely to prove more expensive for borrowers in the long run.

“Increased competition in the two year market has increased the competitiveness of the deals available, but at £928, the average arrangement fee remains more than £100 higher than on longer deals.

“Borrowers’ love affair with shorter term deals means lenders benefit from the increased frequency with which arrangement fees become payable.    

“Lenders appear to be discouraging borrowers from taking medium to longer term deals by charging higher rates, as extended periods of repayment, together with uncertainty over the economy in the medium term, bring a higher risk of default.

 “By opting for a five year deal, borrowers are likely to benefit from a more stable mortgage market when they come to remortgage. Increased equity in their homes from rising property prices will increase their chances of being eligible for a more competitive deal at a lower LTV band.”

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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