A pricing competition between banks and building societies has resulted in mortgage rates falling to their lowest level in nearly two years. This recent trend shows that lenders are trying to remain competitive by offering more attractive rates to borrowers.
These mortgage rates are now lower than they have been since the Mini Budget under Liz Truss in 2022, which had caused significant market disruptions and pushed rates higher. The drop in rates marks a shift in the mortgage market, providing some relief to prospective homebuyers who have been dealing with higher borrowing costs.
This decrease in rates has been driven in part by the Bank of England’s decision earlier this month to cut the base interest rate from 5.25% to 5%. This move has encouraged lenders to lower their rates in response, making mortgages slightly more affordable. As a result, the mortgage market is seeing increased activity as buyers look to take advantage of the improved conditions.
Lowest rate
NatWest has introduced a 3.83% five-year fixed mortgage rate, which is the lowest rate available since the end of September 2022, according to broker L&C, as reported by The Times. This reduction marks a significant shift in the market, as lenders begin to offer more competitive deals to attract borrowers.
Currently, seven of the UK’s 10 largest lenders are offering fixed-rate deals below 4%, signalling a broader trend of easing mortgage costs. Major banks like Barclays, Halifax, HSBC, and Nationwide have also lowered their rates, making it easier for buyers to secure more affordable mortgage terms.
Nationwide was the first to break the trend of higher fixed rates, cutting its rate to 3.99% last month. This move set the stage for other lenders to follow suit, contributing to a gradual improvement in mortgage affordability after months of elevated rates.
Despite this positive development in the mortgage market, inflation remains a concern. Inflation recently rose to 2.2%, but this increase was lower than analysts had predicted, offering some relief to the market. The combination of stabilising inflation and falling mortgage rates suggests a potentially more favourable environment for homebuyers in the near term.
Variable rate misery
Around 600,000 homeowners across the UK are paying significantly more on their mortgages because they are still on standard variable rates (SVR), which tend to be higher than fixed rates. According to data from Moneyfacts, the average SVR currently stands at 8.16%, meaning these homeowners could be spending thousands more annually compared to those who have switched to more competitive deals.
UK Finance, the banking trade body, has reported that over half a million mortgage holders are still on these SVR deals. This situation highlights the importance of reviewing mortgage options regularly to avoid paying unnecessary extra costs. The Daily Telegraph noted that many borrowers remain on these deals, either due to inertia or difficulties in switching to better rates.
Meanwhile, the property market continues to show resilience. Asking prices across England and Wales saw a modest increase of 0.2% during July, marking the seventh consecutive month of price rises. Compared to 2023, asking prices are now up by 1.2%, signalling a steady, if slow, growth in the housing market despite economic challenges.
The latest data from the Home.co.uk Asking Price Index (HAPI) shows that this upward trend was seen across most regions in England. However, the North-West and South-East saw no change in asking prices during this period, as did Wales and Scotland. Despite these exceptions, the overall market remains on an upward trajectory, reflecting continued demand and relatively stable market conditions.
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