Abbey latest to cut mortgage rates

2:32am Friday 29th August 2008

Abbey has become the latest lender to announce it was cutting its mortgage rates in a further sign that competition is returning to the market.

The group is shaving 0.2% off its two-year fixed rate deal for people borrowing 70% of their home's value and 0.1% off its three-year fixed rate loan.

The move will leave rates on both deals at 5.69% for people who pay a £995 arrangement fee.

The lender also announced that it was launching a new range of low fee deals for homeowners with a 40% deposit who are borrowing up to £250,000.

People taking out a two-year fixed rate mortgage from the range will pay a rate of 5.79%, while two-year tracker deals start at 5.94%, both with a £499 fee.

Abbey's announcement comes after Alliance & Leicester said it was cutting the cost of all but one of its mortgage products, reducing rates by between 0.1% and 0.55%.

The moves continue the recent trend among lenders to pass on reductions in wholesale funding costs to consumers as they once again compete for borrowers.

Figures released last week showed that the average cost of a two-year fixed-rate mortgage had returned to the level last seen in August 2007, before the problems caused by the credit crunch began to impact rates.

Financial information group Moneyfacts said the average rate for one of the deals was 6.59%, only fractionally above an average of 6.56% in August last year, and well down on a level of 7.08% in early July.

But despite the fall in rates, arrangement fees on the deals still remain higher than last year, while lenders continue to demand large deposits in order to secure their best rates.

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