Mortgage rates on five-year fixed rates dip below 6%

Mortgage rates on five-year fixed rates dip below 6%

Mortgage rates on five-year fixed contracts fell below 6% for the first time in almost two months, a sign that the UK mortgage market is stabilizing following the government’s unfortunate ‘mini’ budget.

The average rate for a five-year fixed-rate mortgage fell to 5.95% on Tuesday, the lowest level since early October, according to data provider Moneyfacts.

The latest cut is a reprieve for borrowers after rates last month hit their highest level since the financial crisis. The government’s September 23 budget statement sent gilt yields skyrocketing, forcing many lenders to withdraw fixed-rate deals for new customers and reinstate them with higher rates.

“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, financial expert at Moneyfacts.

The average two-year mortgage rate also fell to 6.13% on Tuesday, from 6.65% at the end of October.

Nationwide was among the lenders who improved their terms. The UK’s biggest building society said on Wednesday it would cut rates by up to 0.3 percentage points on a range of fixed and tracking deals, including mortgages for first-time buyers with a 95% loan-to-value ratio.

HSBC will cut residential and rental mortgage rates on Thursday. Coventry Building Society said it had cut rates on residential property loans by 0.15 percentage points and cut rates on all five-year fixed contracts for owners to 65% LTV.

Ray Boulger, broker at John Charcol, said: “What is more relevant is that five-year contracts have fallen below 5% in some cases.”

Aaron Strutt, a mortgage broker at Trinity Financial, said 5% “is still hugely more expensive than the deals we’re used to.”

“The cost of funding has come down and we expect cheaper fixed rates over the next few months,” he added. “If the real estate market continues to slow, lenders are acting as normal and that usually comes in the form of cheaper rates and looser acceptance criteria.”

The Office for Budget Responsibility said last week that house prices are expected to fall 9% over the next two years and remain below their current level for the next five years.

UK housing demand fell in October at the fastest pace since the pandemic began, in one of the biggest falls in more than two decades, according to the Royal Institution of Chartered Surveyors.

Simon Gammon, managing partner at brokerage Knight Frank Finance, said fixed rates could fall further, but were unlikely to fall to 1 or 2%, the rate range widely available a year ago. “Maybe this is the new normal,” he added. “People will have to get used to it.”

Many borrowers will also struggle to afford higher rates. The government said in the autumn statement last week that it would extend its “mortgage interest support” scheme from the spring, helping struggling homeowners pay interest.

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