Mortgage deals under 6% disappear

Fixed-rate mortgage deals below six per cent are now disappearing from the market for the foreseeable future.

As the liquidity crisis continues – with the London Interbank Offered Rate (Libor) remaining well above the Bank of England's base rate – lenders are being forced to raise rates to ration limited funds.

This week alone Nationwide has increased its rate by up to 0.5 per cent, while Woolwich has withdrawn some of its most popular two-year fixed-rate deals to control demand.

If the trend continues, argues price comparison site mform.co.uk, deals with interest rates below six per cent will be a thing of the past.

"Mortgage rates are continuing to rise despite concerted action by the Bank of England and it is unlikely there will be many fixed-rate deals left for below six per cent," said Francis Ghiloni, mform business development director.

"Those that do survive with headline rates of less than six per cent are likely to have higher fees as lenders seek to maintain profit margins."

Rates for lenders to secure cash on the money markets for two, three and five-year fixed deals have increased by up to 0.44 per cent over the past month, analysis by the online mortgage company shows.

Two-year money was 5.96 per cent in May compared with 6.38 per cent now and three-year money has increased from 5.9 per cent to 6.34 per cent.

"The gap between variable and fixed rates is widening," added Mr Ghiloni.

"Despite this borrowers are still looking for the certainty delivered by fixed rates and we’d urge people to consider variable products such as discount rates.

"Borrowers should always focus on the true cost of a loan taking into account monthly payments and fees."

Currently the most competitive discount product on the market is a two-year discount from HSBC with an initial rate of 5.63 per cent and a £249 fee.

Chris O'Toole