Mortgage costs fall from 8-year high in July

LONDON (Reuters) - The cost of taking out the most popular type of fixed-rate mortgage fell last month for the first time since February, Bank of England data showed on Monday.

The drop is welcome news for homeowners who had seen the cost of mortgage finance rocket to an eight-year high, but analysts cautioned that it was too soon to say the credit squeeze was loosening its grip.

"Rates have fallen but they are still very restrictive given the current macro-economic backdrop," said Lena Komileva, a market economist at Tullet Prebon.

Figures from the central bank show the typical rate on a new 75 percent loan-to-value mortgage, fixed for two-years, fell to 6.36 percent from 6.6 percent in June.

The rate on a 75 percent loan-to-value mortgage fixed for 10 years fell to 6.43 percent from 6.46 percent in June.

Swap rates, which underpin the cost of short-term fixed lending, have dropped sharply over the past month as falling oil price have encouraged speculation that interest rates will eventually be cut.

Money market rates show the Bank is likely to hold interest rates at 5.0 percent for several months, but cut them to 4.5 percent by the middle of next year.

Alan Clarke, an economist at BNP Paribas, said the fall in fixed mortgage rates would provide some relief to the thousands of homeowners whose existing fixed-rate deals were about to expire, but doubted it would do much to entice first-time buyers.

"This is the first bit of helpful news for a while but it comes on the back of a sizeable upward shift the prior month, so rates are still higher than two months ago," he said.

"If reports are correct that potential buyers are sitting on their hands in anticipation of possible stamp duty freezes, then to some extent it is academic what the cost of a two-year fixed rate is -- new buyers are holding fire."