Mortgage rates have eased for a second consecutive week, with lenders starting to trim fixed deals after a period of rapid repricing, although costs remain markedly higher than at the start of March.
The latest figures from Moneyfacts show the average two-year fixed rate has fallen to around 5.81%, down from a recent peak of 5.90%, while the average five-year fix has edged down to roughly 5.70% from 5.78%, although rates for borrowers with larger deposits are considerably lower.
The reductions follow a sharp rise in early spring, when rates climbed quickly from around 4.83% for two-year fixes and 4.95% for five-year deals at the beginning of March. That repricing was driven by a sudden shift in swap rates, rather than any changes in conditions in the housing market.
And those in turn were linked to a jump in global energy prices during the escalation of tensions in the Gulf and concerns over its impact on inflation.
The data shows that around 30 lenders have adjusted their pricing just last week, with the majority cutting rates as conditions stabilised. However, movements remain uneven, with some providers still making increases or restructuring their product ranges.
Repricing slows after March spike
The pace of change, though, has slowed significantly since March, when lenders withdrew products and repriced within days as markets reacted to rising inflation expectations driven in part by higher oil and gas costs.
That volatility pushed mortgage costs above 5% across most fixed-rate products and reduced product availability, particularly at higher loan-to-value ratios.
While recent weeks have brought more stability and some small reductions, the overall cost of borrowing remains elevated. Moneyfacts analysis suggests borrowers are still paying around £1,700 more per year on a typical mortgage compared with pricing before the spring spike, with the latest cuts reducing that by around £145 annually.
Swap rates key drivers
Mortgage pricing is closely tied to movements in swap rates, which reflect market expectations for the future path of the Bank of England base rate.
As inflation expectations increased following the rise in energy prices, financial markets pushed back the timing of base rate cuts and moved towards a ‘higher for longer’ outlook, prompting swap rates to rise and lenders to quickly reprice. Although swap rates fell below 4% earlier in April, they have since moved back towards 4.25%, limiting the scope for any sustained reductions in fixed mortgage pricing.
Buy-to-let follows a similar pattern
There is a similar pattern for buy-to-let mortgages, although rates remain slightly higher than in the residential market.
Buy-to-let fixed deals moved above 5% during the March repricing and have since remained around that level, as a result of tighter affordability requirements and lender risk margins. Product choice has also narrowed, particularly for higher loan-to-value borrowing.
Recent stabilisation in swap rates, however, is beginning to filter through into this sector of the market, too, with some lenders making modest reductions and reintroducing products, but any movements are limited.
Stability returns, but outlook remains uncertain
The figures show we have now moved into a more stable pricing environment, but mortgage rates remain sensitive to inflation data and global developments, particularly movements in energy markets.
With the course of events in the Gulf still unclear, the outlook for inflation and interest rates remains uncertain, and mortgage pricing will reflect that volatility.
