Average mortgage rates fell to their lowest levels ever, as the real estate market officially reopened to business this week, but banks have not cut costs as much as the Bank of England cut.
Moneyfacts financial experts say the two-year average fixed rate is now at a record low of only 2.09 percent.
While average rates were low, individual deals have historically been cheaper, despite the Bank of England lowering the base rate to a record low of 0.1 percent.
For example, the cheapest two-year fix in September 2017 was 0.99 percent, compared to 1.09 percent today. However, the current cheapest five-year deal, a 1.34 percent 60 percent loan-to-value fix from TSB, is the cheapest ever.
Buyers with a small down payment may still find their options severely limited
The mortgage category with the largest average interest rate decline was five-year fixes at 0.39 percent, but this does not reflect the 0.65 percent that the Bank of England shaved off the base rate.
Borrowers are also facing pressure on the corona virus as the number of available deals to choose from dropped from 5,222 before the government introduced the nationwide lockdown to just 2,566 in early May.
It’s the more expensive, high-credit deals that lenders have withdrawn, which explains the very low average rate.
Consequently, it may not be cheaper for a buyer with a small down payment to get a mortgage – in fact, they may find their choices severely limited.
The Bank of England lowered the base rate in quick succession in light of the coronavirus crisis, with the reference loan rate falling from 0.75 percent to 0.25 percent and then to 0.1 percent.
But with the best mortgage deals, only a fraction of that has been done away with – with the lowest five-year fixes from just under 1.5 percent to 1.34 percent.
Nearly half a million real estate transactions have stalled according to government estimates, and many of them were able to reboot from Wednesday, May 13.
Sellers can now defy the market and buyers can hunt again, following strict guidelines published by the government to get people moving again and get a vital part of the economy going.
Hopeful starters – who would have had many mortgage options at the beginning of the year – now seem to want to pay more to borrow the same amount.
|Average rates||20th of March||May 20th||Difference|
|Two-year flat rate (all LTVs)||2.43%||2.09%||-0.34%|
|Two-year fixed rate (75% LTV)||2.29%||1.97%||-0.32%|
|Two-year fixed rate (LTV 90%)||2.57%||2.40%||-0.17%|
|Two-year fixed rate (LTV 95%)||3.26%||3.36%||0.10%|
|Fixed interest over five years (all LTVs)||2.74%||2.35%||-0.39%|
|Fixed interest over five years (LTV 75%)||2.56%||2.20%||-0.36%|
|Fixed interest over five years (LTV 90%)||2.91%||2.65%||-0.26%|
|Fixed interest over five years (LTV 95%)||3.58%||3.62%||0.04%|
Eleanor Williams, a financial expert at Moneyfacts, said, “The product choice for borrowers who need higher loan-to-value deals has fallen sharply for both two- and five-year fixed rates.
“Looking at products that are often preferred by first-time buyers, the number of available products has decreased 90 percent loan-to-value by 270 and 243 for two- and five-year fixed rate options, respectively.
New buyers are therefore likely to feel the effect of the current conditions even more than most. Rather, these borrowers are looking for a low-deposit mortgage product that has shrunk significantly as a sector of the market. ‘
The cheapest two-year fixed interest rate currently available for those with a 10 percent down payment is from HSBC and has a rate of 1.79 percent.
Moneyfacts also found that in some areas, the mortgage market is starting to show green shoots of recovery as lenders are cautiously starting to reintroduce deals.
Williams said, “We are now beginning to see lenders relaunching products within their range, and some providers have eased the loan-to-value limits they introduced at the beginning of the crisis.
“Mortgage lenders are still open, and rates are low for those who qualify.”
She advised those wishing to make a remortgage or restart their purchase to speak to their lender or an independent qualified advisor.
“People can now cling to a low rate,” she added, although lenders may not keep rates as low as activity in the housing market starts to pick up again.
Two-year fixed-rate deals for people with a 25 percent down payment are on average 0.32 percent down on March.
Meanwhile, those who only have a 5 percent down payment will find fixes for two years slightly more expensive, with rates averaging 0.10 percent higher than before the pandemic.
You can also compare the costs yourself with our real cost mortgage calculator.
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