First Direct Offer Record Low Fixed-Rate Mortgage

The mortgage rate battle between banks has escalated further with First Direct the most recent to declare a reduction in their fixed-rate mortgages. They have announced a new scheme which offers their customers a five-year fixed mortgage at 2.28%.

Furthermore, those looking for a longer-term deal can sign on for a decade at 2.89% which is a record low rate for such an extended period of time.

The head of products at First Direct, Andrew Forbes, stated: ìDemand for fixed rates continues and we know that borrowers are looking for competitive rates that give them an element of flexibility. Our new deals allow customers to take advantage of the marketís lowest rates and protect themselves against future rate increases.î

However, despite the headline grabbing figures, those who want to obtain such a rate will have to put down a sizeable 40% deposit and thus maybe better off looking elsewhere.

Furthermore, it is recommended that borrowers look into the overall structure of the mortgage as you can often save money even if borrowing on a marginally higher rate. This is demonstrated by a comparison with the Yorkshire Building Society who have a higher five-year fixed rate at 2.34% but ask for a smaller £975 fee. First Directís is considerably more at £1,450.

The driving down of fixed-rate mortgages has been explained as partly a response to the Bank of Englandís decision to continue to keep the base interest rate at a record low of 0.5%.

In further news, mortgage analysts are forecasting better deals in the future, stating that there could be five-year deals offered at below 2% in the next few weeks.

Mark Harris who works at SPF Private Clients commented on the phenomenon: ìLenders are keen to advance more money this year and theyíre cutting their prices to attract customers. Banks will hope to make money by selling customers other products such as current accounts and credit cards.î

The fact that reduced prices are being so heavily linked to the Bank of England holding the base rate has led to increasing interest on how long this will last.

A statement issued by the Centre for Economics and Business Research explored the subject further, stating: ìThe headliner rate of inflation, as measured by the Consumer Price Index, fell to just 0.5% in December and, according to figures from the British Retail Consortium, food prices plunged at the quickest rate in eight years in January.î

The statement goes further: ìThis combined with further falls in the price of vehicle fuels is likely to move consumer price inflation to a new record low in January, edging the UK economy closer to deflation. The CEBR expects a brief bout of negative inflation to begin in MarchÖAs such it looks increasingly unlikely the Bank of England will raise the base rate in 2015. The CEBR now expects the MPC to start raising rates from February 2016.î

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