Fixed rate mortgage 'war' erupts

People looking to move house or secure a better deal on their mortgage are set to benefit, as lenders compete and war is declared by mortgage providers.

"We are now in the throes of a fixed rate [mortgage] war," said Duncan Pownall, mortgage development manager at Bradford & Bingley.

His comments come as the Bank of England looks set to drop interest rates for the first time in over two years, and mortgage providers look to cut their own fixed-rate deals.

Mr Pownall explained: "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 per cent and 4.29 per cent respectively.

"Spurred into action, Alliance & Leicester has also entered the fray with a two-year deal at 4.24 per cent and most recently Newcastle has launched a two-year product at 4.22 per cent. 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."

But while ever-decreasing headline rates attract consumers, Mr Pownall also offered a note of caution.

"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 per cent product, for example, costs £599 whilst Nationwide charges up to £484 in fees to remortgage onto their 4.39 per cent 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 per cent which has no fees. Similarly Nationwide is offering 4.79 per cent 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."

And along with fixed rate deals, other sorts of mortgages are starting to reduce in price as well.

"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 per cent 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 per cent, base rate 0.16 per cent; 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.

But whatever the outcome, the price war should prove good news for consumers careful enough to read the small print.

"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," Mr Pownall concluded.