Mortgage lenders cut rates

It was good news for mortgage borrowers after HSBC announced the launching of its cheapest ever mortgage, a two-year discount deal with a starting rate of 1.99%, while Woolwich and Cheltenham & Gloucester cut down fixed-rate mortgages, but the best deals are reserved for borrowers with big deposits.

HSBC's new loan, is a discount deal that offers a rate 1.95% below the bank's standard variable rate. This is available only to borrowers with at least 40% to put down as a deposit. Borrowers ith 25% equity are offered a rate of 2.49%, while for those with a 10% deposit the rate is 3.89%.

According to Martijn van der Heijden, Head of Mortgages at HSBC, the new loan was designed to appeal to remortgage borrowers, but the bank was taking steps to help the first-time buyers.

Andrew Hagger of price comparison website Moneynet.co.uk said the booking fee was "hefty for a short term deal”. According to him, although interest rates are not expected to go up in the short term, borrowers who were concerned that a rise could make it difficult to repay their loan should consider a fixed-rate mortgage, rather than a variable rate deal.

Fixed-rate deals too have started to fall as swap rates, upon which they are based, have dropped sharply in recent days. Barclays mortgage arm, Woolwich, cut the price of its two-year fixed-rate mortgage by 0.2% to 4.09%. Cheltenham & Gloucester made similar cuts, reducing the cost of two- and three-year fixed-rate mortgages available through intermediaries by between 0.1% and 0.2%, leaving a two-year deal at a 60% loan to value ratio at 4.19%.

The new deals do not offer much benefits to first-time buyers who are still priced out of the housing market, even though prices remain well below their peak.

The Land Registry said the average price of a home in England and Wales had increased by 1.7% in July. The new deals could strengthen the remortgage activity which has started to pick up in recent months after falling off sharply.