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Average two-year fixed mortgage rates fall below 6% as best buys charge 4.6%

Back to stability?  Mortgage rates have been falling steadily in recent weeks, after peaking in late October in the wake of the mini-budget

The average two-year fixed-rate mortgage falls below 6% for the first time in two months… but some best buys are now charging just 4.6%

  • The two-year fixed rate transaction average is now 5.99% according to Moneyfacts
  • The typical five-year fixed rate has already exceeded the benchmark and is now 5.78%
  • Both had jumped more than 6.5% by mid-October after the mini-budget
  • Mortgage rates could drop further in coming weeks as brokers aim to hit annual targets, expert says

The average two-year fixed-rate mortgage rate fell below 6% for the first time in two months, data from Moneyfacts shows.

The two-year average transaction rate is now 5.99%, the lowest since early October, when rates rose sharply following the cataclysmic mini-budget.

For five-year fixed contracts, the average rate is now 5.78%, after falling back below 6% two weeks ago.

Both averages had jumped to more than 6.5% by mid-October. However, the best deals available now charge interest as low as 4.6%.

>> Check the latest best mortgage rates using our calculator

Back to stability?  Mortgage rates have been falling steadily in recent weeks, after peaking in late October in the wake of the mini-budget

Back to stability? Mortgage rates have been falling steadily in recent weeks, after peaking in late October in the wake of the mini-budget

The continued decline in swap rates is driving further improvements in fixed rates. Swap rates are an agreement in which two counterparties, such as banks, agree to exchange one stream of future interest payments for another, based on a fixed amount.

As swaps go down, mortgage rates generally go down. Conversely, if they increase, mortgage rates tend to follow.

The Coventry Building Society and the Principality Building Society both launched 2-year contracts below the 5% mark. The Principality offers a rate of 4.65% fixed for 2 years at 65% LTV.

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Rachel Springall of Moneyfacts said: ‘Lenders appear to be slowly reducing their fixed prices to adjust their positions, and in doing so the overall average two- and five-year fixed mortgage rates are now below 6%.

“In the coming weeks, rates could fall further, particularly if mortgage lenders have targets to meet as we get closer to the end of 2022.

“As the mortgage market remains volatile, it is essential that borrowers seek independent advice to review the offers on offer, or whether to be a little patient in the hope that rates will come down further.”

In just over a month since Nov. 1, two-year transaction interest rates have fallen an average of 0.48 percentage points, while five-year averages have fallen 0.54 points. percentage.

For a mortgage on the current average UK house price of £296,000, the drop would mean an £88 reduction in monthly payments for a two-year contract and a monthly saving of £97 on a five-year contract years, based on a 25-year contract. term.

This would mean annual mortgage savings of £1,056 and £1,164 respectively.

However, while this is good news for borrowers, rates are still well above where they were last summer and are above last year’s lows, leaving many fearful of a mortgage shock. for borrowers whose fixed rates expire next year.

Half of UK homeowners have a fixed rate mortgage ending within the next two years.

In July last year, HSBC offered a fixed rate of 0.99% over two years, for those who held a deposit or equity of 40%. Santander and TSB offered similar deals, while the lowest rate offered was 0.87% from Nationwide.

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Since then, mortgage rates have climbed rapidly. On August 1, 2022, about a year later, the average two-year fixed rate for all deposit sizes was 2.52%, according to data from Moneyfacts.

The two-year fixed rate peaked at 6.65% on October 20 and the five-year fixed rate at 6.51% on the same day.

However, the average fixed rates for two- and five-year mortgages have since fallen steadily.

Most now expect rates to be in the 4-5% range next year, despite the likelihood of successive Bank of England rate hikes as the Monetary Policy Committee continues to act to fight against inflation.

Someone with a £200,000 mortgage with a 25-year term would pay £754 on a 1% interest rate – but if that rate increased to 5%, their monthly payment would rise from £415 to £1,169. Over a fixed period of two years, it would cost them almost £10,000 more.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate contract is coming to an end, or because they have agreed to buy a home, have been urged to act, but not panic.

Banks and building societies are still lending and mortgages are still being offered and applications are being accepted.

However, rates change rapidly and there is no guarantee that transactions will last and not be replaced by mortgages at higher rates.

This is Money’s best mortgage rate calculator, powered by L&C, that can show you deals that match your mortgage and property value.

What if I need to remortgage?

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to get a rate.

Anyone with a fixed-rate deal ending in the next six to nine months should consider how much it would cost them to remortgage now — and consider entering into a new deal.

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Most mortgage transactions allow fees to be added to the loan and they are then only charged at the time of subscription. By doing so, borrowers can secure a rate without paying costly arrangement fees.

What if I buy a house?

Those who have agreed to buy a home should also aim to get quotes as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching and prepare for the possibility of home prices falling from their current high levels, due to higher mortgage rates limiting people’s ability to borrow.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rate calculator to view offers that match your home’s value, mortgage size, term, and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the loan mortgage that’s right for you.

> Check out the best fixed rate mortgages you could apply for

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