Having climbed to over 6% in Autumn in the wake of former Chancellor Kwasi Kwarteng’s mini-Budget last year, mortgage rates have now fallen three months in a row despite the Bank Rate moving in the opposite direction.
According to Forbes, the average 2-year mortgage rate has dropped to 4.62% today whilst 3-year and 5-year fixed rate mortgages are pegged at 4.78% and 4.40% respectively. For lower loan-to-value remortgages, options are available at below 4% -an incredible improvement on the average rate of 6% in November 2022.
In more good news, the average amount of time a mortgage is available before it is withdrawn has increased to 28 days, the highest level since March 2022, and up from just 15 days in January. Product choice has increased as the market stabilises with 4,341 different deals currently available compared to 2,258 options in October 2022.
Why did mortgage rates spike in 2022?
Mortgage rates spiked last year as a result of central banks increasing borrowing costs to curb demand and mitigate hyperinflation. The steep rise in borrowing impacted the rate at which lenders borrow money on fixed-rate deals. This resulted in mortgage lenders reducing and repricing products which lead to a decrease in the number of mortgage options available to buyers. Only 2,258 products were available in October 2022.
What should I do?
Think about remortgaging if you are sitting on a variable rate, the average standard variable rate is 6.84% according to Zoopla. Remortgaging to a 5-year fixed rate deal of 5.2% could reduce costs by £200 a month on a £200,000 mortgage.
There is more competition for long-term fixed rate mortgages due to volatility, with the gap between 5-year and 2-year products currently at 0.24% -the largest margin for 5 years.
According to Zoopla, UK mortgage rates are likely to rest between 4% to 5% over the next few months which is indeed higher than in previous years but relatively cheap in a historical context for mortgage rates. The era of cheap money is over. The good news is that lower mortgage rates will reduce any downward pressure on home prices in 2023 as more entrants will be in the purchasing market. RightMove has already confirmed that demand is stronger than expected with an 11% rise in enquiries made to agents in the last two weeks alone.
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