Mortgage rates in the UK have recently reached their lowest levels since prior to the controversial mini-budget. This trend is attributed to a competitive landscape among lenders and the anticipation of interest rate cuts. The average two-year fixed mortgage rate fell to 4.86%, while the five-year fixed rate dropped to 4.91%, marking significant reductions from previous levels.
Current Mortgage Rate Trends
According to analyst Moneyfacts, these rates are the lowest recorded since October 2022. The rise in mortgage rates back then was triggered by unfunded tax cuts included in the September mini-budget, which adversely affected market confidence. The recent drop represents the first instance where the average five-year fixed-rate mortgage has dipped below 5% since May 2023.
- Average two-year fixed rate: 4.86%
- Average five-year fixed rate: 4.91%
- Lowest five-year fixed rate since May 2023
Bank Actions and Market Predictions
Last week, over 20 banks announced reductions in their mortgage rates. The Bank of England is anticipated to lower the base rate further from 4% to 3.75% in its upcoming meeting on December 18. This would mark the fifth cut in the base rate in the past year.
Adrian Anderson, a mortgage broker at Anderson Harris, noted that falling swap rates—a benchmark for interbank lending—reflect market expectations of base rate cuts. He emphasized that banks are eager to lend, leading to competitive pricing in mortgage products.
- Predicted base rate cut: December 18
- Number of banks reducing rates: 24 last week
- Average five-year fixed rate in August 2023: 6.85%
- Average two-year fixed rate peak: 6.22%
Recent Rate Changes by Key Lenders
Several major lenders have made notable cuts to their mortgage rates:
- First Direct: Largest reduction at 0.35 percentage points
- Nationwide: Lowest two-year fixed rate at 3.58%
- Barclays: Cut some rates by 0.18 percentage points
- HSBC: Reduced rates by 0.12 percentage points
- Natwest: Reduced rates by 0.2 percentage points
Rachel Springall from Moneyfacts reported that the number of lenders adjusting rates has doubled compared to the previous week. This shift is expected as lower swap rates and anticipated base rate reductions provide a more favorable environment for borrowers.
Market Outlook
As the housing market continues to adjust, many analysts believe that the competitive pricing among lenders will persist. David Hollingworth from L&C Mortgages remarked on the increasing competitiveness among lenders due to reduced buyer activity in the market. This, in turn, leads to sharper pricing as banks fight for their market share.
The outlook for mortgage rates is cautiously optimistic, with expectations of further improvements in the near future as economic conditions evolve. Borrowers should stay informed about changes in rates and market dynamics as they consider their mortgage options.
