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Mortgage price-war continues as banks push home-loan rates lower

October 2 2014

More than half a dozen major lenders have defied expectations by withdrawing their old mortgage deals and replacing them with cheaper alternatives.

With the new Mortgage Market Reviews settling in and the end of the year approaching, banks and building societies have their annual lending targets in mind and now appear more confident to offer top deals.

Latest offers come from Tesco Bank and West Brom with deals aimed at borrowers with a 25 per cent deposit looking for a five-year fixed rate.

This is Money website reports that other lenders are offering even lower rates if you can put together a bigger deposit of 40 per cent.

The moves come despite continued speculation over when the Bank of England base rate is likely to push up from its historic 0.5 per cent low, increasing the cost of borrowing.

Financial experts believe the mortgage price-war is down to swap rates, which lenders use to price their loans, as well as some lenders wanting to attract new business to meet end-of-year targets.

Another explanation for the new price war is that some lenders may have hoarded cheap cash which they received as a result of the Funding for Lending scheme.

The scheme was launched in the summer of 2012 and helped to ramp up competition in the mortgage market by allowing lenders to get access to cheap funding, on condition that they passed on the benefits of this to borrowers.

The initiative was re-focused in 2014 away from households and towards helping businesses.

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