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Five-year fixed rate mortgages drop below 5 per cent

Date: Mon, 15 Nov 04 Analysis

Interest rates on five-year fixed mortgages fell below five per cent for the first time in six months this week, as lenders cut their prices in anticipation of interest rates hitting a plateau.

The cuts follow several weeks of speculation in the interest rate markets that Bank of England borrowing costs have now peaked. Base rates have now been held at 4.75 per cent for the last three consecutive months, the Independent reports.

However, speaking earlier this week, Mervyn King, the governor of the Bank of England, made it clear that further rises in the base rate have not been ruled out.

He said which way rates go will now depend on the movement in key economic indicators, such as GDP growth, inflation and house prices, over the coming months.

The latest cuts in mortgage rates could temporarily help to rekindle the housing market, as borrowing becomes more affordable. However, mortgage brokers believe that most people are still nervous enough about the future prospects of house prices to stay away from the market.

David Hollingworth of London & Country Mortgages said: "I think people are generally less confident in the housing market, and are now starting to feel the effects of the previous rises in interest rates," he said.

"But remortgaging has remained strong, and there are some good opportunities for people to save money on their current mortgages now that fixed rate deals are coming down."

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