The average interest rate on a five-year mortgage deal has fallen below 6% for the first time since the disastrous mini-budget two months ago that ended up costing Kwasi Kwarteng his job as chancellor.
Moneyfacts, a financial data provider, said on Tuesday that the average five-year fixed mortgage rate had fallen below 6% for the first time in seven weeks. The reduction is good news for potential borrowers, but interest rates could “fall further”, it suggested.
The housing market was thrown into disarray by Kwarteng’s radical plan for unfunded tax cuts that triggered an increase in the long-term borrowing costs that underpin mortgage deals. His decisions have been largely reversed by his successor Jeremy Hunt as he sought to calm financial markets.
“Borrowers may well be breathing a sigh of relief to see fixed mortgage rates starting to fall, but there could be a lot more room for improvement,” said Rachel Springall, a finance expert at Moneyfacts. “Borrowers who put their plans for home ownership on hold, or indeed parked the idea of refinancing, may now be tempted to scrutinize the latest deals on offer.”
Mortgages already became more expensive after this year’s interest rate increases from the Bank of England. But around 1,700 deals were withdrawn amid the economic shock caused by the mini-budget, and average two- and five-year fixed mortgage rates rose sharply, from 4.74% and 4.75% respectively, to peaks of 6.65% and 6 .51% October 20 . The number of deals has increased from a low of 2,258 to 3,540 now. On the eve of the Kwarteng budget, there were 3,961 products.
“It’s worth noting that prices could fall further, but there’s no clear answer as to how quickly that could be,” Springall added. “It has actually been about two months since both the average two-year and five-year fixed mortgage rate broke 5%, but today only a handful of lenders are offering sub-5% fixed deals.
“Borrowers may feel they need to be patient a little longer before committing to another fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”