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Beyond the peak

30th July 2008 | back to article listings BACK    print this article PRINT

With so much negative news about property and property investment in the UK, it may be with much delight that one recent trend has been observed, as lender follows lender in cutting mortgage interest rates. Not everything is bad news when it goes downhill.

Although it may be said that rates are not exactly tobogganing down the cresta run, the trend seems to be clear enough. With HSBC announcing 0.31 per cent cuts to its two-year fixed-rate and 0.16 per cent reductions to longer-term deals, plus a trimming of the arrangement fee from £799 to £599, the news continued to be positive. Coventry Building Society has added to this with its own new deals, while today Lloyds TSB and Cheltenham and Gloucester launched new rates.

The reason for all this is clearly tied up with swap rates, according to finance website Moneyfacts, which has pointed out that these tend to be linked on a three-week time-lag to actual mortgage rates. So, it pointed out, swap rates hit a peak of 6.52 per cent on June 16th, with two-year fixed mortgage rates hitting a high of 7.08 per cent on July 11th. Now, these figures are at 5.74 per cent and 6.95 per cent respectively, meaning that there should be more cuts on the way soon.

Moneyfacts commented: "It is encouraging that, at long last, lenders are responding to the easing in wholesale borrowing costs and passing a discount on to the consumer. There is a sense that competition is finally returning to the fixed-rate mortgage market, which will benefit the borrower."

If this is true of the general mortgage market, so it is with buy-to-let deals. Woolwich said as much when it dropped its buy-to-let mortgage rates this week and the Coventry announcement mentioned that it is bringing in new rates for buy-to-let investors too.

Moreover, the scope of the market may widen too. Such a situation has been predicted by Eric Daniels, chief executive of Lloyds TSB, in response to news that his bank's share of the new mortgages market has risen from nine per cent in the first half of 2007 to 24 per cent in the first half of this year.

He told the Daily Telegraph: "The mortgage market is reaching a new equilibrium. We expect lenders in the second half will take a slightly more aggressive stance and put more mortgages out there. So I don't think we will continue with as much as 24 per cent of net new lending."

If new lenders come back to the market for residential buyers, so too, perhaps, for buy-to-let, offering investors more mortgage choice and better investment prospects as a result.

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