Fixed mortgage rates drop below 5% for first time since July

Fixed-rate mortgages have fallen below 5 percent for the first time since early July, offering some hope to struggling homeowners.

Yorkshire Building Society has launched a 4.99 per cent fixed rate deal which is available to both home buyers and remortgaging.

It is available with a 75 percent loan-to-value ratio, meaning eligible customers can apply as long as they have at least a 25 percent deposit or 25 percent of the equity in their home.

Someone with a £200,000 mortgage could expect to pay £1,168 a month if they pay it off over 25 years, compared to the market average of £1,249 a month.

However, the five-year deal comes with a fee of £1,495, and a mortgage with a higher rate but a lower fee may be a better deal for some customers.

You can compare rates and fees and calculate the true cost of a mortgage using our calculator.

After Yorkshire BS, the next best deal is Virgin Money, which has a five-year fixed rate of 5.07 per cent and is available to homebuyers who buy with at least a 35 per cent deposit (65 per cent of loan-to-value ratio).

HSBC has a five-year fixed rate of 5.09 per cent for homebuyers with at least a 40 per cent deposit (60 per cent loan-to-value ratio).

Nationwide also has a 10-year solution available at 5.04 per cent which is available to homebuyers with a deposit of 15 per cent or more (85 per cent loan-to-value ratio).

The average five-year fixed mortgage rate is now 5.67 per cent, according to Rightmove.

Rachel Springall, finance expert at Moneyfacts, said: “It’s fantastic to see such competitive deals launched by Yorkshire Building Society.

‘Borrowers looking for a low interest rate new mortgage will find the five-year fixed deal below 5 per cent to be the lowest rate available in its sector.

“The incentive packages available on all of today’s new offers may also be popular with borrowers looking to save on the initial cost of their mortgage.”

Why are mortgage rates falling?

Yorkshire BS’s decision to cut rates, which includes cutting up to 0.46 percentage points from its 95 per cent loan-to-value agreements, is partly due to competition between lenders.

HSBC has also cut mortgage rates by 0.15 percentage points on average today, along with rate cuts across its buy-to-let range of up to 0.3 percentage points.

Last week there were also cuts at Coventry BS, Nationwide BS, Accord, Generation Home, Barclays and Clydesdale Bank.

Beyond the peak? Fixed mortgage rates appear to be retreating after an avalanche of rate hikes in recent months

Rate cuts have also been encouraged by future market expectations about where interest rates are headed.

Market expectations are reflected in swap rates. These are agreements in which two counterparties, for example banks, agree to exchange a stream of future fixed interest payments for a stream of variable future payments, based on a specified amount.

Mortgage lenders enter into these agreements to protect themselves against the interest rate risk involved in making fixed-rate mortgage loans.

More simply put, swap rates show what financial institutions believe the future will hold with respect to interest rates.

Five-year swaps are currently at around 4.56 percent, up from 4.74 percent earlier this month.

In July alone, five-year swaps were above 5 percent. Similarly, the two-year swap rate is now 5.21 percent. At the beginning of July this figure was around 6 percent.

Ben Merritt, director of mortgages at Yorkshire Building Society, said: “This week, favorable market swap rates presented precisely that window to reduce our mortgage costs and offer the greatest incentive to those people who normally struggle most – those with the lowest incomes. Lower”. deposits to put down, including first-time buyers.

Nicholas Mendes, mortgage technical director at broker John Charcol, says he wouldn’t rule out a five-year fix of 4.5% by the end of the year.

Will mortgages increase again if the base rate rises?

The Bank of England is widely expected to raise the base rate from 5.25 percent to 5.5 percent on Thursday, although some economists are betting it will stay the same.

The decision will be made the day after we know the August inflation reading, which many expect to rise as a result of rising fuel prices. This may have some bearing on what the Bank of England decides to do with the base rate.

If the base rate rises, this will likely increase costs for those with variable rate mortgage agreements.

However, it is unlikely to have the same impact on fixed-rate products, according to Nicholas Mendes, mortgage technical manager at broker John Charcol. In fact, he expects fixed rate deals to continue to decline.

“The MPC meeting is expected to remain the same or increase by 0.25 percent, which will undoubtedly be the last [rate rise]says Mendes.

‘Even in the event that there is a rate increase, this has already been included in the fixed rate price.

‘As a result, I expect prices for two- and five-year fixed rates to continue to decline.

“While no one can be sure, I wouldn’t rule out a five-year target of 4.5 percent by the end of the year based on the current price path.”

How are mortgage rates affecting the real estate market?

While it is good news that mortgage rates are falling, we are still a long way from the low rates we enjoyed in previous years.

Last year around this time it was possible to get a fixed rate of 3 percent and the year before that borrowers were able to get deals for less than 1 percent.

Unsurprisingly, the change in mortgage rates has had an impact on the housing market. Transactions are down almost 20 percent, while home prices are also falling.

Last week it was reported that mortgage arrears had reached their highest level in almost seven years.

The value of outstanding mortgage loans rose 13 per cent to £16.9bn in the second quarter of this year, according to figures from the Bank of England.

It was the highest level since the third quarter of 2016, and 29 percent higher than the same period a year ago.

Although there may be less activity in the housing market, Mendes says he does not expect to see a sudden increase in forced sales.

“Fixed rate mortgages of around 5 per cent may dampen buying demand as potential buyers postpone their plans, but I still expect first-time buyers to continue buying,” he says.

‘With rents continuing to rise, fixed rates of 5 per cent or less could encourage more first-time buyers and those renting accommodation to buy as a cost-effective alternative.

‘A significant increase in arrears was due to landlords, which is understandable in this climate over the past year.

Down: In recent weeks, mortgage rates have continued to fall due to competition among lenders and market expectations about future interest rates.

‘For residential homeowners there are more options to avoid falling into default, unless they decide to bury their heads in the sand.

“There is further support from lenders and the Mortgage Letter allowing a six-month grace period which would allow mortgage holders to sell a property before things start to get worse.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says falling mortgage rates will result in buyers being able to afford larger mortgages, which should lead to an increase in transactions.

Harris adds: ‘Falling interest rates may encourage more borrowers to take the plunge and take out a mortgage. However, it’s not just about falling mortgage rates but about affordability and loan underwriting.

‘Lenders are still required to stress test borrowing at a minimum of 1 per cent above the reversion rate, with some lenders using different lower rates for long-term arrangements.

“When these stress rates also begin to decline, borrowers will be able to take on larger mortgages, which may lead to an increase in mortgage transactions and lending.”