A few things influence lenders when they come to changing their fixed rates.

The 1st reason is the ‘Cost of Money’ – in simple terms they may be able to borrow £100m off a pension fund and promise to pay them 4% on it for 5 years…then lend it out to the public at 5% for 5 years and make a profit of £500,000 over the 5 years.

Sometimes the pension fund will have put it’s price up, and then the lender has to put it’s price up. The pension fund would put it’s price up if it felt it could do better elsewhere at low risk, for instance if it felt that interest rates were due to rise. This happened in December and January.

The 2nd reason is ‘Public fear’. This happened over Christmas – the papers all said ‘In 2011 interest rates will rise, grab a fixed rate now’. In January the lenders were swamped with people asking for fixed rates up, and so put their prices up so they could make a little extra profit.

Now, the mad rush is over and the mortgage market has calmed down a bit, the lenders are reducing their rates a bit because they need to compete for business, rather than ‘deal with the rush’. So, fixed rates will still be dearer than they were in December…because of the 1st reason…but slightly cheaper than they were because the lenders can’t demand their ‘extra bit of profit’

This past week or so we have seen 2 or 3 lenders drop rates by a little bit…hopefully the trend will continue!