Are the lowest mortgage rates relegated to history?

This time last year, Moneyfacts.co.uk recorded the lowest ever average rates for two, three and five-year fixed rate mortgages. However, with two base rate rises under the Bank of England’s belt since then, it seems that the lowest mortgage rates are now part of the history books.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said: “October 2017 will be known not only as the month of the lowest fixed mortgage rates on record*, but also as the turning point in the market. This is because just one month later, mortgage rates were on the rise, as was the Bank of England base rate for the first time since July 2007.

“The past year has been a challenging time for providers as they have had to wrestle with two base rate rises for the first time in years, while at the same time needing to remain competitive to protect their mortgage book. This conflict of interest has meant average fixed mortgage rates haven’t followed the Bank of England’s rate rises entirely. In fact, data from Moneyfacts.co.uk shows the average two-year fixed mortgage rate has risen by just 0.28% in the last 12 months, instead of the full 0.50% base rate increase.

“Despite this, borrowers opting for a two-year fixed rate mortgage today would still be £27.93** per month or £335.16 per year worse off compared to those who were lucky enough to lock into a fixed deal a year ago.

“But it could be worse. Since the August rate rise, many would have expected rates to increase further, but instead they are actually falling, with the average two-year fixed mortgage rate standing at 2.49% today compared to 2.53% in August. Five-year fixed rates have also fallen by 0.02% over the same period.

“The reduction of average 95% loan-to-value rates (reported last week) has some element to play in the overall averages decreasing. However, providers know that many borrowers are starting to think about protecting themselves from future rate rises, and a fixed mortgage does just that. Therefore, lenders are trying to remain competitive, wanting to be seen as offering some of the lowest rates in the market. With the summer now over, providers may also be starting to look at end of year targets, and are perhaps readjusting their rates to meet them.

“However, while rates may be falling now, it is unlikely that the record low levels seen in October 2017 will return anytime soon. With multiple base rate rises predicted for the foreseeable future, it is likely rates will only get higher, so borrowers looking for a fixed deal should act fast avoid disappointment.”

* Moneyfacts average mortgage rate records began in 2007.

**Based on a £200,000 main residence mortgage over a 25-year term on a capital and interest repayment basis. Monthly repayment for the average two-year fixed rate in October 2017 is £868.30 compared with £896.23 today based on this example.

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