FIRST ACTIVE: cost of fixed rate mortgages reduced

Competition has increased in the mortgage market with First Active cutting the cost of its fixed interest rate mortgages for new customers.

The reductions include a 0.2 percentage rate cut in the key one-year fixed rate for new borrowers to 2.54 per cent, the lowest in the market.

The changes, which come into effect immediately, also reduce the two-year fixed rate from 3.84 per cent to 3.58 per cent and the three-year rate from 4.24 per cent to 4.09 per cent.

First Active said in a statement that the reduction reflected the downward shift in longer-term euro interest rates.

Most of the financial institutions increased their fixed rates late last year in response to an increase in long-term interest rates - bond yields - on the financial markets.

However, long-term rates have since eased in response to doubts about the strength of the euro-zone recovery and predictions that, as a result, European Central Bank short-term interest rates are not set to increase for quite some time.

Davy Stockbrokers, in its latest note, has said it believes that, if euro-zone interest rates move at all in the near future, a cut is more likely than a rate hike.

PermanentTSB recently cut its two- and three-year interest rates, and other institutions may respond by cutting their fixed rates.

The one-year fixed rate is an important marketing tool in attracting first-time buyers, according to Mr Peter Bastable, managing director of mortgage broker Simply Mortgages.

He predicted that other institutions may respond to the First Active move by cutting their one-year rates in the near future.

Competition in the mortgage market has intensified over the past year, notably with the increased availability of tracker mortgages.