Alliance & Leicester cuts some mortgage rates

LONDON (Reuters) - Mortgage bank Alliance & Leicester said it is cutting the rates on some of its home loans.

A&L, which last month accepted a cash and shares offer worth 1.3 billion pounds from Spain's Banco Santander, said the rate on two-year fixed loans of up to 250,000 pounds will from Wednesday fall to 6.19 percent from 6.64 percent.

The rate for two-year loans of between 250,000 pounds and 1 million pounds drops to 5.99 percent from 6.14 percent. A&L is also cutting the rate on three-year loans of up to 1 million pounds to 6.89 percent from 7.09 percent.

Several UK mortgage lenders have trimmed their mortgage rates in the past two months in response to a decline in the cost of interest rate swaps, used by banks to price fixed-rate mortgages.

However, mortgage costs remain historically high, having risen sharply in the past year as banks stung by the credit crunch seek to conserve capital and protect profits.

The abrupt rise in borrowing costs has slashed overall mortgage lending, with total UK mortgage approvals falling to 22,448 in July, a decrease of 65 percent compared with the same period last year, according to figures published Tuesday by the British Bankers' Association.

According to financial services data group Moneyfacts, the average rate on popular two-year fixed rate loans stands at 6.9 percent, up from 6.56 percent a year ago, while the rate on three-year deals has risen to 7.13 percent from 6.54 percent.