UK Lenders Cut Interest Rates on Short-term Mortgage Deals

According to the report published on November 24th by an online financial source, Moneyfacts, average mortgage interest rates in the UK fell below 5% for the first time in the past 6 months.
At the moment, the average interest rate on a 2-year fixed residential mortgage loan amounts to 4.99%, claim Moneyfacts analysts. In July, average mortgage rates reached their annual peak of 5.21%, however, the recent rate cuts resulted in a £300 reduction in annual mortgage repayments on a typical mortgage loan of £150,000.
As we have reported earlier, several UK lenders, such as Santander (Abbey and Alliance & Leicester), Lloyds Banking Group (Cheltenham & Gloucester), and others announced cuts in mortgage interest rates in the past 2 weeks as a result of swap rates decline.
In the opinion of Ms. Michelle Slade, personal finance analyst at Moneyfacts, UK borrowers are finally starting to see more competition on the British mortgage market as lenders are not only reducing mortgage interest rates, but also raising the maximum loan to value ratio on best buy mortgage deals. Ms. Slade explains the behaviour of lenders by the fact that they become used to post-downturn market conditions.
Ms. Slade, however, highlighted that the good news concerning mortgage interest rates apply only to short-term mortgage deals. In contrast, lenders are reluctant to cut rates on medium- and long-term deals, she says. For instance, borrowers wishing to fix their mortgage deal for 3 or 4 years have to pay 5.58% in interest, on average, while those looking to fix for 5 years, face an average interest rate of 6.15%.
Let us remind that last week several lenders increased the cost of their long-term mortgage deals. As such, Northern Rock announced a 0.4% increase in the cost of its best buy 5-year fix, increasing the interest rate to 5.39%, up from 4.99%. This week the interest rate on a SVR deal was raised by Accord. It went up by 0.65%, from 5.34% to 5.99%.