Mortgage rates 'continue to fall'

The cost of borrowing between lenders has fallen in recent weeks

The Abbey is the latest lender to reduce mortgage interest rates during the most prolonged period of cuts since the start of the credit crunch.

The Spanish-owned lender is cutting the rates for new borrowers on two, three and five year fixed-rate home loans by up to 0.3% from Friday.

It follows drops by a variety of lenders in recent weeks as the cost of borrowing to each other falls.

But first-time buyers still have to find large deposits for the best deals.

Phil Cliff, from the Abbey, said that fixed-rate mortgages were growing in popularity.

The move comes shortly after Lloyds TSB announced its fifth mortgage rate cut in a month. The Halifax has also regularly dropped the cost of its new loans.

Falling numbers

Financial information service Moneyfacts said on 22 August that mortgage rates had returned to levels seen before the onset of the credit crunch.

Anybody who had a deposit of less than 10% will still struggle to get a mortgage Ray Boulger, of John Charcol

The interest rates for a two-year fixed rate mortgage had peaked at 7.08% in July and was now at 6.39%.

But the associated costs remain high, with arrangement fees up on last year and borrowers still having to find a large deposit.

"Anybody who had a deposit of less than 10% will still struggle to get a mortgage," said mortgage broker Ray Boulger, of John Charcol.

The squeeze on mortgages has been the result of lenders restricting borrowing between themselves.

The Bank of England intervened in April with its special liquidity scheme which allowed banks to swap £50bn of mortgages for government bonds.

That swap scheme is set to end in October, but the Council of Mortgage Lenders (CML) has called on Chancellor Alistair Darling to announce an extension or renewal to counter market uncertainty.

"Funding problems in the mortgage market [are] a fundamental bar to meaningful housing market recovery," said CML director general Michael Coogan in a letter to the chancellor.