First National Building Society has become the third financial institution in recent weeks to announce a reduction in fixed interest rates on mortgage loans. The new interest rate on a one-year fixed rate mortgage is 6.2 per cent (annual percentage rate of 7.5 per cent to 7.8 per cent), down from 6.45 per cent. Repayments in the first year of a 20-year £50,000 mortgage will fall from £371 per month to £364. After the first year, the borrower will move to a variable interest rate. The biggest reduction is on the three-year fixed rate. It has been cut by 0.45 of a percentage point to 6.8 per cent.
On a two-year fixed rate mortgage, the interest rate has been reduced to 6.75 per cent from 6.99 per cent.
The new five-year fixed mortgage rate is 6.99 per cent down from 7.24 per cent.
First National has introduced a new four-year fixed rate mortgage of 6.99 per cent.
In recent weeks, TSB Bank and ACC Bank have announced reductions in fixed interest rates. ACC reduced its rate on a one-year fixed mortgage to 6.15 per cent from 6.75 per cent while TSB brought its one-year fixed rate down to 5.95 per cent from 6.2 per cent.
Borrowers trying to decide between fixed and variable interest rate mortgages should look at a number of factors, including the variable rate to which they will move after the fixed rate period comes to an end.
Some financial institutions offer low one-year fixed rates but borrowers move to relatively high variable rates after that year and for the remainder of their mortgage term.
With short-term interest rates expected to fall by up to two percentage points in coming months, most borrowers would be best advised to take out variable rate mortgages.
But a person taking out a relatively large loan with repayments making up a significant proportion of monthly income, and who would therefore be vulnerable to any volatility in interest rates, may be well advised to consider a fixed interest mortgage. Fixed rate mortgages are generally more expensive than variable rate products in a climate of falling interest rates with mortgage holders paying a premium for the security of knowing the exact amount of their monthly repayment over the fixed period.
