Page last updated at 08:32 GMT, Friday, 22 August 2008 09:32 UK

Mortgage rates 'at 2007 levels'

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There are signs the mortgage market is recovering from the credit crunch

Mortgage rates are back to where they were in August 2007 at the onset of the credit crunch, according to research by price comparison website Moneyfacts.

The average rate on a two-year fixed deal is now 6.59% - almost the same as 6.56% in August 2007 and down from 7.08% in early July.

However, the costs associated with mortgages remain high, Moneyfacts said.

The better rates are only available to those with big deposits and lenders are also charging higher fees.

Moneyfacts said that the average mortgage arrangement fee was now 964 compared with 803 in August 2007.

Furthermore, there is less competition in the marketplace, with only 3,748 products on offer compared with 13,027 in August 2007.

Borrowers are also required to put down much higher deposits than a year ago. An average of 20% is now the norm, Moneyfacts says.

"The pricing is getting back to where we were a year ago, but the appetite for lending is diminished," said Darren Cook, a spokesman for Moneyfacts.

Better margins

While the rates are at similar levels, banks are potentially making more profits on mortgages than a year ago.

Official interest rates, on which fixed mortgage rates are indirectly based, are now 5% compared with 5.75% in August 2007, which means lenders are getting better returns on the products offered.

Last summer 33 lenders were offering borrowers 100% mortgages compared with just two lenders in August this year.

Abbey, Nationwide and HBOS have been among the lenders that have been cutting their rates.

Lending to homeowners has slumped dramatically in 2008, because the credit crunch has dried up the supply of funds available to banks.

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