Average two- and five-year fixed rates near sub-5%
The number of mortgage products available in the UK decreased in August, according to price comparison site Moneyfacts.
The latest Moneyfacts UK Mortgage Trends Treasury Report revealed that the total number of options fell to 6,842, reversing the increase seen in the previous month. Despite this monthly decline, product availability remains higher than the 6,657 options recorded in August 2024.
The average shelf-life of a mortgage product increased to 17 days, up from 16 days last month. This figure matches the average shelf-life from a year earlier, but is longer than the 13-day average seen two years ago.
Average rates for both two- and five-year fixed mortgages dropped to 5.01%, with the two-year rate falling by 0.08% and the five-year by 0.07% compared to the previous month. These rates are slightly above the sub-5% levels last seen in September 2022 and May 2023, respectively.
At the beginning of August 2024, the average five-year fixed rate stood at 5.38%. By the start of this month, it had decreased by 0.37 percentage points to 5.01%. The average two-year fixed rate saw a larger decline, dropping by 0.76 percentage points from 5.77% to 5.01% over the same period.
The Moneyfacts Average Mortgage Rate now stands at 5.04%, down from 5.11% last month and 5.65% in August 2024. This is also lower than the 6.52% average recorded in August 2023. The average two-year tracker variable rate remained steady at 4.91%. The average standard variable rate (SVR) also held at 7.42%, below the peak of 8.19% reached in late 2023.
The changing market conditions mean mortgage brokers must act quickly to secure favourable deals for clients, as product shelf-life shortens and rates fluctuate. Advising on refinancing and helping clients navigate new loan-to-income rules will be increasingly important, especially for first-time buyers and those with smaller deposits.
“Lenders had mixed attitudes to pricing during July, and the churn of products resulted in a dip in choice, cancelling out the previous month’s rise,” said Rachel Springall (pictured right), finance expert at Moneyfacts.
“In spite of the perhaps cautious approach, rate cuts prevailed to push the Moneyfacts Average Mortgage Rate down to 5.04% at the start of this month, edging ever so closer to dipping below 5%. Breaking down into fixed rate moves over the past six months shows where the bigger margins are being shaved off by lenders, with the average two-year rate dropping by 0.51% versus just 0.31% cut off the five-year rate.
“However, the movement to swap rates has shown a shift back to a more traditional market, where five-year deals were known to cost extra. Such rate inversion has occurred for almost three years, starting in response to the ‘mini-Budget’ in September 2022.”
Springall added that lenders may well consider a more low and slow approach to making cuts over the next few weeks, because of the knife-edge base rate decision last week which led to a rise in swap rates.
“Piling onto this, the markets could react badly to any significant decisions made in the Autumn Budget, an event which can be a blessing or a curse for future rate setting,” she said. “If inflation gets out of control or economic uncertainties spike, borrowers can forget about more base rate cuts by the Bank of England this year.
“It has now been two years since the average two-year fixed mortgage rate hit a 15-year high, as lenders frantically repriced their deals the average shelf-life of a mortgage was just 13 days. Lenders are still churning their ranges today, albeit with a shelf-life of 17 days, but such repricing is to the benefit of borrowers.
“The incentive to refinance today onto a fixed deal is much more critical, as there is now a significant difference of more than 2% to escape a revert rate, compared to just 1% back in August 2023, based on the average two-year fixed rate versus the average standard variable rate (SVR).”
Springall also noted that while borrowers who have a 10% deposit or equity would see an uptick in product choice month-on-month, the average rate across two- and five-year fixed 90% loan-to-values (LTVs) rose, albeit by small margins.
“First-time buyers who have a small deposit of 5% will find product choice hasn’t surged as they might have hoped after the Government replaced the Mortgage Guarantee Scheme in July, but in good news there has been a drop to fixed rates,” she said. “However, the big difference to first-time buyers and those borrowing at higher LTVs as the year progresses will be the changes to the loan-to-income (LTI) rules. Lenders would be wise to do as much as they can to support new buyers, and it remains essential borrowers seek advice to navigate the mortgage maze.”
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