Post Office leads way with cut in mortgage rates

The Post Office has slashed its mortgage rates and launched a new market-leading two-year fixed-rate deal.

The group has cut rates across its range of fixed-rate, tracker and buy-to-let mortgages, reducing the interest it charges by up to 0.8 per cent.

It has also launched a new two-year fixed-rate loan of 2.85 per cent, for people borrowing up to 65 per cent of their home's value and paying a 1,495 arrangement fee, putting it at the top of the best buy tables.

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But the cuts made by the Post Office have not been reflected in the wider mortgage market, which has remained largely static since the beginning of July.

The average interest rate charged on a two-year fixed-rate deal is currently 4.5 per cent, just 0.01 per cent lower than at the beginning of July, while rates on five-year fixed-rate mortgages have fallen by only 0.04 per cent to 5.56 per cent during the same period, according to financial information group Moneyfacts.co. uk.

The average interest rate on a tracker mortgage has actually risen slightly since the beginning of last month to stand at 3.56 per cent, up from 3.54 per cent.

At the same time, there has been a slight fall in the number of different mortgage products available.

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There are currently 2,699 different deals on offer, down from 2,858 at the beginning of July, although much of the fall has been caused by Cheltenham & Gloucester, part of Lloyds Banking Group, streamlining their mortgage range.

Darren Cook, of Moneyfacts, said: "The mortgage market looks pretty static at the moment. We have reached a plateau in the rate at which new products are being launched and rates are being reduced.

"The market is waiting for a trigger to get back into action, but that trigger is likely to have to be a change to the base rate."

He added that he thought lenders may start to tighten their criteria again during the coming six months as they worry about the impact of public sector spending cuts on employment levels in the sector.

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But Ray Boulger, senior technical manager at mortgage broker John Charcol, thought lenders were more likely to tighten their criteria in response to changes being proposed by City watchdog the Financial Services Authority .