Market anticipates further changes ahead of interest rate announcement
The average two-year fixed mortgage rate in the UK has reached parity with the average five-year fixed rate, according to Rightmove’s latest mortgage tracker. Both rates currently sit at 4.52%, marking the first time since September 2022 — prior to the mini-Budget — that the rates have been equal.
A year ago, the average two-year fixed rate was 5.25%. Based on the current average asking price for a home, this shift translates to a typical monthly mortgage payment of £1,518, down from £1,650 last year — a reduction of £132 per month for borrowers with a 20% deposit and a 30-year repayment term.
The most affordable mortgage product available is a two-year fixed deal at 60% loan-to-value, with a rate of 3.69%. Since April, the lowest rates on the market have consistently been two-year fixed products.
The Bank of England is widely anticipated by analysts to reduce its base interest rate to 4% at its meeting next week, with markets indicating more than an 80% probability of a 25-basis-point cut. Changes to the base rate have a direct impact on borrowers with tracker and standard variable rate (SVR) mortgages. While the majority of borrowers are currently on fixed-rate deals and are insulated from immediate fluctuations, movements in the base rate continue to shape the pricing of future mortgage products.
“Over the last week, average mortgage rates have remained pretty flat in the build up to next week’s interest rate decision,” said Matt Smith, mortgage expert at Rightmove. “Expectations are currently set on a cut next week, and I expect lenders will use this moment as an opportunity to reduce mortgage rates a little further.
“Rate drops have been very slow and steady this year, but someone looking to take out a mortgage right now is likely to see a notable reduction in the rate they’d have been offered this time last year, particularly someone looking to fix for two years. With average two-year and average five-year fixed currently level, it would appear to only be a matter of time before the typical two-year rate is cheaper than the five-year equivalent.”
According to Nathan Emerson, chief executive of industry body Propertymark, many borrowers will view the ongoing enhancements to mortgage offerings by lenders as both necessary and positive news.
“Affordability continues to be the number one issue for many aspiring and current homeowners,” he said. “Therefore, seeing banks continue to improve their mortgage products will be much needed and welcome news for many.
“At a time when people are facing higher taxation connected with property transactions in many cases, ever more challenging deposits which are needed to enter the property market, and general cost-of-living increases, a wider variety of more affordable products is essential to help combat and further support consumers. It remains imperative that the cogs of the housing market continue to turn as it plays a crucial role in wider economic health.”
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