Halifax cuts fixed-rate mortgages

HALIFAX, the UK's largest lender, has gone against a tide of rising interest rates to reduce the cost of its fixed-rate deals.

The move reinforces a growing view among economists that money markets may have jumped the gun in predicting large interest rate rises next year.

'A short-term fall in the cost of borrowing from the money markets has enabled us to offer lower rates,' said Craig Donaldson, head of mortgage products. 'We've acted quickly so that our borrowers can benefit immediately.'

Halifax's cheapest two-year fixed rate deal for borrowers moving home has fallen from 4.04% to 3.99%. A five-year deal is now 4.49%, down from 4.6%.

Nearly all banks and building societies have been raising fixed-rate deals in recent months because they expect the Bank of England monetary policy committee to push the base rate up to around 5% by the end of next year.

The number of borrowers taking fixed rates peaked in August with more than 50% booking such deals compared with 22% in November last year.

So far the MPC has raised the interest rate 25 basis points to 3.75%. And many economists have questioned the money market's prediction of spiralling rates. Steven Andrew, chief economist at ISIS Asset Management, expects rates to creep up to no more than 4.25% by the end of next year.

'There are not going to be aggressive interest rate rises from the Bank,' he said. 'The market is predicting around 5% for the end of 2004, but a rise that size would add around £200 a month to a mortgage of £150,000.

'It's difficult to see why the Bank would want to get anywhere near 5% in the next 12 months.'

Simon Rubinsohn, chief economist at Gerrard, has taken a similar view. He expects the next rise in February and for rates to end 2004 at 4.25%.

However, he also says there has not been a major swing in the money markets. 'I'd be very surprised if this move from Halifax was a result of changes in the money markets,' he said. Rubinsohn says the market is predicting nearly 5.25% for the end of 2004. 'It's more likely that Halifax is taking a marketing lead and wants to get ahead of the rest.'

Best fixed rates

Halifax says it wants to reduce costs for first-time buyers by removing arrangement fees, yet its three-year fixed deal is 5.65% compared to, say, 3.99% from Alliance & Leicester.

Fixed rates for home movers depend on the size of your deposit. With 20% to put down, you pay 4.79% on a two-year deal. It ranks among the best deals on the market but not as good as 4.39% from Sainsbury‘s Bank.

On a five-year fixed deal, Halifax‘s rate has fallen from 5.49% to 5.39%. Again, this is competitive but more expensive than Skipton Building Society‘s 5.19%.

For borrowers remortgaging rather than moving, a two-year fixed deal is now 5.29% instead of 5.39% if you have a 20% deposit, or 5.95% if you have a deposit of 5% to 20%.

Over five years, the rate has fallen from 5.85% to 5.69% if you have a 20% deposit. But it has actually risen from 5.85% to a pricey 6.05% if you have between 5% and 20% to put down.

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