Abbey follows Nationwide in reducing mortgage rates

19 May 2008 / by Rebecca Sargent
Abbey became the second leading lender to cut its mortgage rates late last week, following in the footsteps of Nationwide Building Society which cut its rates earlier in the week.

Abbey announced on Friday that it was reducing rates on all flexible and tracker rate mortgages by 0.05 per cent and that some fixed rates are to be reduced by as much as 0.17 per cent for customers with large deposits.

The announcement came just two days after Nationwide revealed it is cutting the price of some of its fixed rate mortgage deals by up to 0.30 per cent, sparking hope in the mortgage market.

According to Nationwide the reduction of mortgage rates is a direct result of the Bank of England's Special Liquidity Scheme, which aimed to reduce inter-bank lending rates, which are measured by the London Inter Bank Offered Rate (Libor).

Matthew Carter, divisional director for mortgages at Nationwide, said: "Recent reductions in money market swap rates mean we are able to reduce our two year and five year fixed rate mortgages. This is good news for home buyers, remortgage customers and borrowers who are coming to the end of their existing deals."

The Bank of England was forced to step in with a cash injection of £50billion as a result of high inter-bank lending rates which were forcing banks to pass high interest rates onto their customers.

According to the Bank of England, the average interest rate on two year fixed rate mortgages for new customers with a five per cent deposit rose to 6.94 per cent in April, almost two whole percentage points above the Bank base rate of 5 per cent.

Commenting on its mortgage rate cuts, a spokesperson for Abbey mortgages said: "Over the last two years, we have been carefully maintaining a balance between the profitability of new business, prudent lending criteria and our market share aspirations. Whilst current market conditions remain challenging, this sensible approach to risk has proved very resilient and allows us to reward lower fixed rate LTV business with competitive rates.

"Abbey had already decreased rates on its flexible rate and tracker mortgages by 0.10 per cent in response to the Bank of England's recent cash injection. This additional 0.05 per cent reduction anticipates future falls in Libor rates and will further support the Bank of England's action in helping to bring liquidity back to the UK mortgage market." They added.

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