Mortgage rates in the UK have recently dropped to their lowest levels since before the controversial mini-budget. This decline comes as lenders aim to attract customers ahead of anticipated interest rate decreases.
Current Mortgage Rate Trends
According to data from Moneyfacts, the average two-year fixed mortgage rate fell to 4.86%. The five-year fixed rate, meanwhile, is now at 4.91%. These are the lowest rates recorded since October 2022.
For the first time since May 2023, the average five-year fixed-rate mortgage is below 5%. Over 20 banks reduced their rates last week, with expectations for the Bank of England to lower the base rate from 4% to 3.75% during its financial policy meeting on December 18, 2023. The Bank has already cut the base rate four times this past year.
Impact of Falling Swap Rates
Recent trends indicate that banks are also factoring in future rate cuts, which is reflected in declining swap rates. These rates are significant as they affect the cost of fixed-rate mortgage deals.
- Adrian Anderson from Anderson Harris noted a competitive atmosphere among banks.
- He stated, “There is a price war going on… and banks are motivated to lend.”
- Over 24 banks announced rate cuts last week, with reductions averaging up to 0.35 percentage points.
Major Lender Adjustments
Notably, Nationwide has adjusted some of its fixed-rate products down by 0.21 percentage points. Their lowest offering now stands at 3.58% for a two-year fixed rate with a 60% loan-to-value ratio, which is the lowest since September 2022.
Other lenders have followed suit, with Barclays reducing rates by up to 0.18 percentage points and HSBC cutting by 0.12 percentage points. First Direct led the reductions with some products slashed by 0.35 percentage points.
Market Dynamics and Future Predictions
The easing of mortgage rates comes after a period of significant increases due to inflationary pressures. In August 2023, average rates peaked, with the five-year fixed rate at 6.85% and two-year fixed at 6.22%.
Experts, including David Hollingworth from L&C Mortgages, suggest that decreased buyer activity has incentivized banks to compete more aggressively. This competitive pricing is expected to benefit consumers directly as positive market shifts occur.
The outlook remains cautious yet optimistic, with analysts projecting additional rate cuts may take place in 2024. The recent government budget also contributed to a favorable market reaction, sparking hopes for further mortgage rate declines.
