Mortgage rates in the UK have dropped significantly, reaching their lowest levels since the turbulent period following the mini-budget. This decline is occurring as lenders compete for customers in anticipation of forthcoming interest rate reductions.
Latest Mortgage Rates Update
According to Moneyfacts, the average two-year fixed mortgage rate fell to 4.86%, while the average five-year fixed rate decreased to 4.85%. These rates are at their lowest since October 2022, when market reactions to unfunded tax cuts led to a spike in mortgage rates.
Historical Context
This is a notable shift, as it marks the first time the average five-year fixed-rate mortgage has dipped below 5% since May 2023. More than 20 banks have reduced their rates in recent weeks, reflecting a competitive market. Additionally, the Bank of England is expected to lower the base rate from 4% to 3.75% during its upcoming monetary policy committee meeting on December 18, marking a series of four cuts within the past year.
Influence of Swap Rates
Banks are currently assessing further rate reductions for the upcoming year, influenced by declining swap rates—key rates used for pricing fixed-rate mortgages. Adrian Anderson from Anderson Harris highlighted that the ongoing price war among lenders has been spurred by falling swap rates and growing optimism about future base rate cuts.
Recent Rate Changes by Lenders
- Last week, 24 banks announced mortgage rate cuts.
- Some lenders reduced fixed rates by as much as 0.35 percentage points.
- Nationwide lowered rates for certain products by up to 0.21 percentage points.
- Barclays, HSBC, and Natwest also made modest cuts ranging from 0.12 to 0.2 percentage points.
- First Direct implemented the largest cuts, with some products seeing a reduction of 0.35 percentage points.
The current lowest rate available is 3.58% for a two-year fixed mortgage with a 60% loan-to-value ratio from Nationwide, marking its lowest offering since September 2022.
Market Dynamics and Predictions
The UK housing market had demonstrated signs of cooling prior to the autumn budget announcements. David Hollingworth of L&C Mortgages pointed out that reduced buyer activity has prompted banks to adopt more competitive pricing strategies.
Looking ahead, there is cautious optimism following the recent budget proposals from Chancellor Rachel Reeves, which, while not perceived as particularly stimulating in terms of tax, did not add inflationary pressure. This perception has positively influenced market sentiment and may further assist in the recovery of the mortgage market.
