Tracker Mortgages fall while Fixed Rates Increase
The average rate on a two-year tracker mortgage has fallen to its lowest level since 1988, while the average two-year fixed rate mortgage has increased to its highest level in ten months, show figures from Moneyfacts.co.uk.

The average rate on a two-year tracker mortgage is now 3.40%, while the average rate on a two-year fixed rate mortgage has increased to 4.59%.

Michelle Slade, financial analyst for Moneyfacts.co.uk, says some borrowers have taken a wait and see approach over the last two years, preferring to remain on a lenders standard variable rate rather than move to a more expensive mortgage deal.

She says: "Talk of an imminent base rate rise has caused a surge in the demand for new mortgage deals.

"Lender's appear to be trying to tempt borrowers off record low SVRs on to new tracker deals instead.

"Rates on tracker deals continue to be more competitive than fixed rate deals, but borrowers need to ensure they factor in the effect of any base rate rises on their monthly repayment when considering a new deal.

"The rise in swap rates appears to have plateaued, but the rise in fixed rates continues - albeit at a slower pace than a few months ago.
"Borrowers looking for a fixed rate mortgage need to act fast as deals are only in the market for an average of two weeks."

Market News and Comment
Swaps rates increased again at the end of last week:

1-year money is up 0.05% at 1.23%
2-year money is up 0.09% at 1.97%
3-year money is up 0.10% at 2.43%
5-year money is up 0.09% at 3.08% 

Swap rates, when referred to in relation to mortgages, are the cost of raising fixed term funding on the money markets.

They reflect the market's expectation of what will happen to interest rates in the future and the most commonly referred to are two, five and ten year swap rates.

Swap rates heavily influence the cost of fixed rate mortgages and can be substantially higher than the Bank of England base rate or Libor (London Inter Bank Offered Rate). Libor does have an effect on swap rates, but swaps are, in the main, driven by the market and what traders expect to happen to rates over a given period of time in the future. Effectively swaps take a longer term view while Libor is a shorter term measure.

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The average cost of a fixed rate mortgage is at its highest level in six months as lenders pass on rising funding costs to borrowers, says Moneyfacts.co.uk.

The cost to lenders of raising funding on the swap rate market has soared in recent months.

At the end of November, the two-year swap rate stood at 1.35%, today it stands at 1.97% - 47% higher.

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3-month Libor has increased to 0.81%

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Loans for remortgages were at a 13-year low in 2010, the latest figures from the Council of Mortgage Lenders reveal.

Remortgages totalled 313,200, worth £39.3bn, in 2010, down 23% by volume and 24% by value from 2009.

There were 529,300 loans advanced for house purchase in 2010, worth £77.1bn, an increase of 3% by volume and 11% by value compared with 2009.

House purchase lending in 2010 accounted for 57% of all mortgage activity, up 9 percentage points from 2009, and loans for remortgage accounted for 29%, down 7 percentage points from 2009.

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Lender News

Northern Rock has launched a range of 90% LTV Everyday mortgages aimed at first-time buyers.

The state owned bank has launched a two-year fixed rate deal at 5.99%, a three-year fixed rate at 6.49% and a five-year fixed rate at 6.59%.

The products are available via branches, call centre and selected intermediary partners. There are no product fees on any of the new 90% deals.