Three leading mortgage lenders reduced their interest rates in advance of the Bank of England’s base rate setting decision. Abbey, Lloyds SB and Cheltenham & Gloucester declared reductions of up to 0.30%.

It is the fifth drop in the last month by Lloyds TSB. Skipton Building Society released news that it was now offering 95% per cent loans available for first time buyers. This now means that the cost of a mortgage is now at levels not seen since the start of the credit crunch. This can only be seen as good news as the number of secured loans approved in July rose slightly over the previous month.

The Monetary Policy Committee (MPC) of the Bank of England has decided to keep the base rate at 5 per cent again this month and has done so since April, so what is driving the sudden reduction in mortgage costs?

The main reason is the recent reduction in something called swap rates, the rates financial institutions charge when lending to each other. These rose sharply in June, driving up mortgage interest rates, but have started to fall. Swap rates are now at their lowest for several months, fuelling the widespread reductions in fixed-rate mortgages.

There are additional factors driving down rates. Mortgage lenders are slowly regaining their confidence and are starting to ofer lower rates than their competitors.

The bad news is that the best rates are only available to borrowers with large deposits or loads of spare equity in their property. The higher the loan to value ratio (LTV), the more expensive the mortgage. Nationwide currently charges 5.78 per cent for a two-year fixed rate up to 60 per cent LTV for remortgages (with a £599 arrangement fee), rising to 5.88 per cent up to 75 per cent LTV and 6.33 per cent up to 90 per cent LTV. That means paying an extra 0.55 per cent if you borrow 90 per cent of your property’s value instead of 60 per cent. With property prices falling, people looking to remortgage will have shrinking equity in their property, and will need to get a higher LTV loan.

These lower rates won’t last long. The next set of rates are likely to be more expensive. So get in quick while stocks last.

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