The average rate on a five-year mortgage has fallen below 6% for the first time since the disastrous mini-budget two months ago that ended up costing Kwasi Kwarteng his job as chancellor.
Moneyfacts, a financial data provider, said on Tuesday that the average five-year fixed mortgage rate fell below 6% for the first time in seven weeks. The reduction is good news for potential borrowers, but rates could “fall further”, he suggested.
The housing market has been thrown into disarray by Kwarteng’s sweeping plan for unfunded tax cuts that have triggered a spike in long-term borrowing costs that underpin mortgage deals. His decisions were largely overruled by his successor Jeremy Hunt as he sought to calm financial markets.
“Borrowers may well breathe a sigh of relief as fixed mortgage rates start to fall, but there may be a lot more room for improvement,” said Rachel Springall, finance expert at Moneyfacts. “Borrowers who have put their homeownership plans on hold, or who have in fact given up on the idea of refinancing, may now be tempted to consider the latest deals on offer.”
Home loans were already getting more expensive after the Bank of England’s series of interest rate hikes this year. But around 1,700 deals were withdrawn amid the mini-budget financial shock and the average two- and five-year fixed mortgage rates rose sharply, from 4.74% and 4.75% respectively, to peak at 6.65% and 6.51% on October 20. . The number of transactions has increased from a low of 2,258 to 3,540 now. On the eve of the Kwarteng budget, there were 3,961 products.
“It should be noted that rates could fall further, but there is no clear answer as to how quickly this may be,” Springall added. “Indeed, it’s been about two months since the average two- and five-year fixed mortgage rate crossed the 5% mark, but today only a handful of lenders are offering fixed offers below 5%.
“Borrowers may feel like they have to wait a little longer before committing to a new fixed rate mortgage, or even wait until next year to see how the market recovers from the recent uncertainty in interest rate.”