The average cost of a two-year fixed-rate mortgage in the UK has fallen below 6% for the first time in almost six months, figures showed on Friday.
In news that will be welcome to homebuyers and remortgagors, data from Moneyfacts showed that the cost of borrowing is still falling from the peaks reached in the summer.
In July, the average cost of a two-year fixed-rate deal went up to 6.86% but on Friday it had fallen to 5.99%.
The average cost of a five-year fixed rate has also continued to fall, and stands at 5.6%, according to Moneyfacts.
While the average reported by Moneyfacts shows the trend, would-be homebuyers and remortgagors can get much better deals than that headline rate.
Competition has been increasing and this week some of the UK’s biggest lenders announced a new flurry of price cuts.
Nationwide Building Society reduced rates by up to 0.31 percentage points, and is offering movers with a 40% deposit a two-year deal fixed at 4.65%, and a five-year fix at 4.29%.
At Santander, rates have been cut by up to 0.32 percentage points. A first-time buyer with a 10% deposit can now fix at 5.64% for two years, while a five-year fixed-rate for borrowers with a 40% deposit is down to 4.39%.
Mortgage rates have had a rollercoaster ride since Kwasi Kwarteng’s mini-budget of September 2022. Panic in the money markets led to an immediate rise in mortgage costs, then after a few months last winter when rates settled back, stubborn inflation prompted the Bank of England to increase rates more rapidly than many had anticipated.
When the Bank meets next week, however, it is expected to hold rates at 5.25% for the third time running, and economists have suggested that the next move will be downwards.
High mortgage rates have caused problems for borrowers coming to the end of fixed-rate deals, and have slowed down the housing market.
Sarah Coles, the head of personal finance at the financial firm Hargreaves Lansdown, said the move below 6% was “psychologically important” and could help bring homebuyers back.
“It would be balm for the agony suffered by sellers over the past few months, as their properties sit unseen on the market and their for sale signs collect grime. However, we can’t expect to see the impact in house price figures until the spring,” she said.
James Hyde, a spokesperson at Moneyfactscompare.co.uk, said although lenders were offering cheaper deals, “it remains to be seen if the recent rate reductions will continue, as any further rises in inflation, base rate, or swap rates may lead to a reversal”.
