Duncan Pownall, mortgage development manager at Bradford & Bingley commented: "We are now in the throes of a fixed rate war. Over the past few weeks we have seen fixed rates drop a number times with the 'big two' Nationwide and Halifax battling it out. Their two-year fixed rates are now priced at 4.39% and 4.29% respectively. Spurred into action, Alliance & Leicester has also entered the fray with a two-year deal at 4.24% and most recently Newcastle has launched a two-year product at 4.22%. This rate currently leads the market, but for how long?
"Lenders are clearly desperate to try and retain customers, especially those coming off cheap fix rates from two years ago, so are devising better deals to keep them. Nationwide in particular has been aggressive in its fixed rate pricing this year maintaining its market share and provoking others into action.
"Despite their allure it is crucial that borrowers aren't tempted by the headline rate alone. Remember that whilst these rates do look attractive, some sport fairly hefty arrangement fees, not always ideal for those with smaller loans. The Halifax 4.29% product, for example, costs £599 whilst Nationwide charges up to £484 in fees to remortgage onto their 4.39% fix. This could make switching over to a new fixed rate deal an expensive business for borrowers.
"Some providers though, do cater for both sides of the market. Alliance & Leicester, for instance, has a two-year fix at 4.59% which has no fees. Similarly Nationwide is offering 4.79% with no fees for purchasers and a £95 admin fee for remortgagers. It is in this environment that seeking financial advice is vital to ensure that borrowers really do get the best overall deal for their circumstances.
"Pricing will become more and more of an issue over the coming months. Swap rates rose sharply by 10bp at the start of the week and although almost all commentators now predict an imminent base rate drop, it will become increasingly expensive for lenders to continue to offer such low fixed rates.
"In the battle for market share, lenders are now designing other features to entice borrowers. Abbey, for example, is offering a two-year fixed rate at 4.49% with no tie-ins. With the increase in fixed rate costs for lenders, we are now beginning to see some great tracker and discount products emerge. Abbey has made a strong move launching a tracker at 4.59%, base rate 0.16%; this signifies the start of tracker products below base rate. These products could prove popular with those borrowers who don't need the security of a fixed rate and if base rate does fall they could reap the benefits of even cheaper monthly payments.
"It will be interesting to see if other lenders can be as aggressive in their pricing as the current crop. The present fixed rate war though is great news for the 800,000 potential remortgagers who have either come off or are about to come off the cheap fixes this year. The watchword now for all borrowers is advice, taking out the right mortgage is key to efficient financial planning. In such a fast changing environment borrowers need to ensure they are getting the deal that is best for their circumstances not just the deal with the lowest rate."
