The Bank of England held interest rates at 5% today after another month of stubborn inflation, but mortgage rates have improved since the base rate was cut last month.
Yesterday, the Office for National Statistics (ONS) revealed that the UK consumer price index (CPI) had remained just above target at 2.2% in August – the same as July.
While this is a drastic improvement from inflation highs of 10% early last year, it meant a more cautious than hoped for outcome at the Monetary Policy Committee (MPC) meeting today, where the Bank of England base rate was held at 5%. This is despite pressure from the wider market to reduce rates to stimulate the economy.
Yet lenders have been slashing mortgage rates over the past month in light of more favourable swap rates, which is good news for new and existing borrowers looking to move ahead with new investments or remortgages at the moment.
Although mortgage rates across the board remain much higher than they were in early 2022, when the base rate had been held at historic lows for more than a year, rates are not historically at high levels. However, it is a cost and risk analysis for any buyer or investor to be mindful of when it comes to affordability.
Mortgage rates moving in positive direction
New data from Moneyfacts has revealed the direction of travel for mortgage rates in relation to the Bank of England base rate. Its findings show reductions across all parts of the mortgage market, with lenders competing to attract and retain borrowers in the current market.
For borrowers on their lender’s standard variable rate (SVR) – which is the most expensive rate and often the default reverted to at the end of a fixed term mortgage – mortgage rates have fallen below 8% for the first time since August 2023. Now, average SVR mortgage rates are 7.99%, while they were at 8.18% in March this year.
Similarly, fixed mortgage rates have also come down to more appealing levels for borrowers. The average two-year fixed rate is now 5.56%, says Moneyfacts, down from 5.76% six months ago in March, and from 6.70% in September last year.
In the five-year mortgage space, which has been offering cheaper deals lately, average rates are now 5.20%, having fallen from 5.34% six months ago, and from 6.19% last September.
Those looking for longer-term stability will also find better deals on 10-year fixed mortgage rates, with the average now standing at 5.63%. This is down from 5.98% in March, and from 5.82% this time last year.
A hive of activity
Thanks to favourable swap rates, a base rate cut from the Bank of England last month, and more positive economic indicators such as improving inflation, the mortgage market has been extremely busy over recent weeks. This has allowed lenders to bring their mortgage rates down and offer a greater range of products to receptive customers.
Although today may have been disappointing for some borrowers, who had hoped for even more drastic falls in the mortgage market off the back of a base rate cut, economists are now forecasting a more likely cut in November, after the new Labour government’s autumn budget.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “New or existing borrowers will ideally want to see mortgage rates fall further in the months to come, particularly if they are about to come off a cheap fixed deal.
“Any borrower looking at their options today for peace of mind could lock into a fixed mortgage early, but it would be understandable for some to adopt a ‘wait and see’ approach, hoping rates will come down by bigger margins.
“However, when falling off a cheap rate onto a revert rate, borrowers will typically see their monthly repayments rise, so seeking advice to weigh up all their options before their deal ends is essential. A typical mortgage being charged the current average SVR of 7.99% would be paying £383 more per month, compared to a typical two-year fixed rate.”
Borrowers are still being affected by affordability issues, particularly as house prices continue to climb, but the fact that mortgage rates are falling to levels “not seen for around six months” is a positive for the sector, says Rachel.
“This month also marks the two-year anniversary of the fiscal announcement, so any borrowers about to come off a two-year fixed deal may be pleased to see the market is much more stable and lenders continue to chop rates to entice new business.”
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