Average two-year fixed mortgage rates fall below 6% as best buys charge 4.6%

Average two-year fixed-rate mortgage drops below 6% for the first time in two months… but some of the best buys are now asking for just 4.6%

  • According to Moneyfacts, the average two-year fixed rate deal is now 5.99%
  • Typical five-year fixed rate has already passed the benchmark and is now at 5.78%
  • Both had risen to more than 6.5% after mini-budget by mid-October
  • Expert says mortgage rates could fall further in coming weeks as brokers aim to meet their annual targets

The average two-year fixed-rate mortgage rate has fallen below 6 percent for the first time in two months, data from Moneyfacts shows.

The average rate for two-year deals is now 5.99 percent, the lowest since early October when rates rose sharply in the wake of the disastrous mini-Budget.

For five-year fixed-term contracts, the average rate is now 5.78 percent, after falling back below 6 percent two weeks ago.

Both averages had risen to above 6.5 percent by mid-October. However, the best deals available right now only charge 4.6 percent interest.

>> Check out the latest best-buy mortgage rates using our calculator

Back to stability? Mortgage rates have fallen steadily in recent weeks, after peaking in late October in the wake of the mini-Budget

The continued fall in swap rates is driving further improvements in fixed rates. Swap rates are an agreement in which two counterparties, such as banks, agree to exchange one stream of future interest payments for another, based on a fixed amount.

As swaps fall, mortgage rates typically fall. Conversely, if they rise, mortgage rates usually follow.

Coventry Building Society and Principality Building Society have both launched 2-year deals that fall below 5 per cent. Principality offers a 4.65 percent fixed rate for 2 years up to 65 percent LTV.

Moneyfacts’ Rachel Springall said: ‘It appears that lenders are slowly lowering their fixed prices to adjust their holdings, and as a result overall average two- and five-year fixed mortgage rates are now below 6 per cent.

Rates could fall further in the coming weeks, especially if mortgage lenders have targets they need to meet as the end of 2022 approaches.

“As the mortgage market remains volatile, it is vital that borrowers take independent advice to consider the deals being offered to them, or they should have a little patience in the hope that rates will fall further.”

In just over a month since Nov. 1, interest rates on two-year deals have fallen by an average of 0.48 percentage points, while five-year averages have fallen by 0.54 percentage points.

For a mortgage at the current average UK house price of £296,000, the drop would mean a reduction of £88 in monthly payments for a two-year deal and monthly savings of £97 for a five-year deal, based on a 25-year contract.

This would mean annual mortgage savings of £1,056 and £1,164 respectively.

While this is good news for borrowers, interest rates are still well above summer levels and rising above last year’s lows, leading many to fear a mortgage shock for borrowers whose fixed rates expire next year.

Half of UK homeowners have fixed rate mortgages due within the next two years.

Last July, HSBC offered a two-year fixed rate of 0.99 percent for those with a 40 percent down payment or equity. Santander and TSB offered similar deals, while the lowest rate offered was 0.87 percent from Nationwide.

Since then, mortgage rates have skyrocketed. On August 1, 2022, about a year later, the two-year average fixed rate for all deposits was 2.52 percent, according to data from Moneyfacts.

The two-year fixed rate peaked at 6.65 percent on October 20, and the five-year fixed rate peaked at 6.51 percent on the same day.

However, the average fixed rate for both two- and five-year mortgages has steadily declined since then.

Most now expect rates to settle somewhere between 4 and 5 percent next year, despite the likelihood of successive Bank of England rate hikes as the Monetary Policy Committee continues to act to fight inflation.

Someone with a £200,000 mortgage over 25 years would pay £754 at an interest rate of 1 per cent – but if that rate were to rise to 5 per cent, their monthly payment would skyrocket by £415 to £1,169. Over a fixed two-year period, it would cost them nearly £10,000 more.

What to do if you need a mortgage

Borrowers needing to find a mortgage because their current fixed interest deduction is coming to an end, or because they’ve agreed on a home purchase, have been urged to act but not panic.

Banks and building societies are still lending and mortgages are still being offered and applications are being accepted.

Rates change quickly, however, and there’s no guarantee that deals will last and not be replaced by higher-rate mortgages.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

However, bear in mind that rates can change quickly, so if you need a mortgage it’s advice to compare rates and then speak to an estate agent as soon as possible so they can help you find the right one mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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