Cheaper two-year fixed remortgage rates have fallen below 5 per cent for the first time since July.
Lenders including Yorkshire Building Society, Virgin Money, Bank of Ireland and, from tomorrow, Barclays, are offering rates below 5 per cent.
The news will be welcomed by homeowners across the country, 1.6 million of whom will see their existing fixed mortgage end next year.
Lenders including Yorkshire Building Society, Virgin Money, Bank of Ireland and, from tomorrow, Barclays, are offering rates below 5% to homeowners.
Although most remortgaging will continue to see a big increase in their monthly costs, the fact that it is now possible to go below 5 per cent, rather than above 6 per cent, will limit the financial shock to some extent.
In total, there are now 27 lenders offering fixed mortgages below 5 per cent, compared to 13 at the beginning of October, according to Moneyfacts. These range from 10-year fixes to two-year fixes.
Rachel Springall, finance expert at Moneyfacts, said: “It is encouraging to see cheaper mortgages on the market for borrowers, particularly the yield on two-year fixed mortgages priced below 5 per cent.
‘This is great news for those who don’t want to commit to a long-term fixed deal. Several large lenders have cut fixed mortgage rates and expectations are high for more cuts in the coming weeks.
“It’s a promising market for consumers looking for a new offering.”
Fixed mortgage rates continue a downward trend
The cheapest deals available are on five-year fixed rates, and the best remortgage deal available currently is 4.59 per cent.
However, most borrowers opt for two-year deals in the hope that interest rates will have gone down by the time they reset.
If current predictions turn out to be correct, it may be wise to go for the shorter, more expensive option.
Analysts at Morgan Stanley have already predicted that the Bank of England’s base rate will be cut in May next year and fall to 4.25 percent by the end of 2024.
Meanwhile, Capital Economics says interest rates will fall during the second half of next year. It predicts the base rate will fall to 3 percent by the end of 2025.
Future falls: Capital Economics predicts that the bank rate will be reduced to 3% by 2026
Virgin Money currently offers the cheapest two-year fixed-rate remortgage deal, charging 4.94 per cent, although it has an origination fee equal to 1 per cent of the amount borrowed.
Yorkshire BS also has a rate of 4.94 per cent with a fee of £1,495.
The Virgin Money deal is open to those with at least 40 per cent equity, while the Yorkshire BS deal only needs a minimum of 25 per cent equity.
Someone with a £200,000 mortgage repaid over 20 years at 4.94 per cent would have monthly payments of £1,313.
Although this may be a jump on what they are currently paying, it is much better than the two-year market average of 6.19 per cent which would see someone in this position pay £1,455 each month.
From tomorrow, Barclays will also join the sub-5 per cent pricing club. It will offer a two-year fixed remortgage at 4.98 per cent with a fee of £999, for those with at least 40 per cent equity.
L&C mortgage expert David Hollingworth believes the deal with Barclays will prove popular and could lead to further rate cuts across all remortgage products.
He says: ‘I think the deal with Barclays is significant as it is available at a more typical standard rate of £999.
‘This will hopefully help force the pace on other lenders, who have tended to be ahead of the curve when it comes to rates for homebuyers, but less aggressive for remortgage borrowers.
‘It is therefore a welcome move by Barclays to join the sub-5 per cent package for remortgage.
“That will help provide better options for those facing the payment shock that today’s higher rates will inevitably bring at the end of a lower current fixed rate.”
Homeowners with equity of 20 percent or less will be limited to remortgage agreements higher than 5 percent.
For example, someone looking to remortgage with just 10 per cent equity in their home can still get a rate of 5.34 per cent with Yorkshire BS.
Falling rates: There are now 27 lenders offering a fixed mortgage below 5 per cent, compared to 13 at the beginning of October.
What other new offers are worth knowing about?
Barclays is launching a new wave of exciting offers aimed at moving companies.
These include a two-year lock-in of 4.8 per cent for those buying with at least a 40 per cent deposit, as well as a 4.95 per cent offer for those buying with a minimum 25 per cent deposit.
Craig Fish, director at Lodestone Mortgages & Protection, believes the current rate at which rates are falling could mean we see a deal below 4 per cent by Christmas.
He says: ‘The rate war is already underway and more lenders are likely to follow.
‘There is a real chance we could see a five-year solution below 4 per cent this time around Christmas, and also a two-year solution below 4.5 per cent.
“Swap rates have fallen this week and lenders are now going to be struggling until the end of the year.”
Rate cuts: Starting tomorrow, Barclays is offering a two-year fixed price of 4.8% for those who buy with at least a 40% deposit and a 4.95% deal for those who buy with a minimum deposit of 25 %.
Yorkshire Building Society’s new rates may also encourage home-movers looking for the cheapest deals.
Its changes include a five-year best buy fixed rate for borrowers with a 25 per cent deposit at 4.69 per cent, with a fee of £495.
Meanwhile, its three-year fixed rate product designed to especially appeal to first-time buyers with just a 5 per cent deposit charges 5.69 per cent, which is also rated Best Buy by Moneyfacts.
What is your advice for those approaching the end of their current mortgage contract?
Many homeowners have been protected from rising rates thanks to the fixed rate agreement they signed before interest rates began to rise.
As people reach the end of their current contract, their monthly payments are likely to increase significantly.
According to Nicholas Mendes, mortgage technical director at broker John Charcol, you should start preparing your budget to adapt to these changes in advance.
‘Calculate the possible payment increase,’ says Mendes. ‘Once you have a new rate in mind, calculate your new potential monthly payments.
‘Then review your financial goals and consider how the potential increase in mortgage payments could affect your savings plans and reassess your budget.
‘Be prepared to dip into an emergency fund or, failing that, try to save for one. This will help cover unexpected expenses or income interruptions that may arise due to higher mortgage payments.’
Plan ahead: According to Nicholas Mendes, mortgage technical manager at John Charcol, borrowers should start preparing their budget to accommodate these changes early.
Homeowners nearing the end of their agreement should also close a new deal early, even if they expect rates to drop.
“Start the remortgage process well before your fixed rate expires to ensure you have enough time to explore options and secure a better rate,” Mendes says.
‘You can get a remortgage up to six months before your fixed rate ends. Locking in a new rate early can be particularly helpful, as it means that if rates were to rise further, you would have already gotten a lower rate.
“If they reduced further in the six months before your fixed rate ended, you will always have the option of switching to a new deal with the existing lender or even starting the process again with a different lender.”
As for those who are looking to sell or have almost paid off their mortgage, they may prefer to stick with their current agreement, although this will mean potentially falling into the lender’s standard variable rate for a short period.
Mendes adds: ‘The standard variable rate is the base rate at which the lender charges interest to those who have abandoned a fixed rate or initial term product.
‘Being on a lender’s SVR will generally be suitable for those who are due to sell their property or are approaching the end of their mortgage, allowing them to make overpayments or pay off the mortgage without any charge.
“Otherwise, as well as considering a product transfer with the current lender, homeowners can move to a fixed rate which will be considerably cheaper.”
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