Mortgage rates set for further falls

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The first half of 2016 saw UK mortgage rates fall dramatically, with record deals offered on many types of mortgage, and the good news for home buyers is that the rates show no sign of slowing down.

That is the key takeaway from new analysis by Moneyfacts, which looks at the shape of the mortgage market this year and compares the average rates in January and July, illustrating a gradual and pronounced reduction, particularly for fixed-rate mortgages.

In January, the average two-year fixed-rate mortgage had a rate of 2.76 per cent, but this has now fallen to 2.52 per cent. A similar pattern has been observed for five-year fixed-rate mortgages, which have dropped from 3.29 per cent to 3.10 per cent.

Long-term changes

Perhaps the most noticeable change has been observed with longer term rates, with the average ten-year fixed rate mortgage dropping from 3.63 per cent in January to 3.43 per cent in July. However, many deals are being offered below three per cent, including Coventry Building Society’s recently unveiled, record-breaking 2.39 per cent deal.

The reduction in rates has also been supplemented by an increase in the amount of products coming onto the market; in January, there were 80 ten-year fixed-rate deals available in the UK, but this has risen exponentially to 127.

As with the fall in rates, the greater availability of products is expected to continue, with the main driver being fierce competition between mortgage providers to attract new customers.

No signs of stopping

Charlotte Nelson, finance expert at Moneyfacts, said it is “little surprise” that mortgage rates have fallen, and that there are currently no signs of the current trend stopping.

According to Moneyfacts analysis, borrowers are considerably better off now than compared to the start of 2016, with those considering a five-year fixed rate mortgage saving around £240 a year compared with the equivalent deal in January.

The result of the EU referendum has also played a role in the drop in wholesale interest rates, which is good news for borrowers. Although the Bank of England refrained from dropping the base rate in July, the anticipated stimulus package in August looks set to put this into effect, which would be good news for those on tracker mortgages, who would see their monthly payments fall instantly.

Good news for FTBs

It is not only existing homeowners who are benefiting from low mortgage rates, however, with first-time buyers (FTBs) also having access to a variety of deals.

The average two-year fixed rate at 95 per cent loan to value has fallen by 0.19 per cent since January and now sits at 4.09 per cent, offering ample opportunity to get on the housing ladder.

The data is supported by recent figures compiled by Halifax for its First Time Buyer Review, revealing that the number of FTB purchases in the UK increased by 10 per cent in the first half of this year, compared to the first six months of 2015.

For those considering switching mortgages or making a move into the housing market, Charlotte recommends taking advantage of the competition between mortgage providers while it is so fierce.

She added: “Borrowers sitting on their provider's standard variable rate or coming to the end of their mortgage deal would be wise to consider a fixed-rate deal now, when they are still at record lows."

Use our mortgage calculator from the Mortgage Advice Bureau to work out the best deal for you.

 

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