Increasing competition between lenders in the five-year fixed rate market has triggered a drop in the average five-year fixed mortgage rate from 2.84% to 2.79%.
According to Moneyfacts.co.uk, the intense competition between lenders has led to the fall in rates, and the difference between the average two and five-year fixed mortgage rates has reduced by 0.03% to just 0.32% in the past three weeks.
Lenders are, it seems, responding to a fall in SWAP rates at the beginning of August (the rate at which banks and lenders use to hedge themselves against interest rate fluctuations). The five-year SWAP rate has dropped to 0.60%, while the two-year rate sits at 0.66%, which means it is cheaper for mortgage lenders to hedge themselves on a five-year mortgage and are therefore more inclined to promote these to borrowers.
Largest rate reduction at 80% loan-to-value (LTV)
Borrowers looking for an 80% LTV mortgage will see the most significant reduction, as rates have fallen 0.08% to 2.79% since the beginning of August. But this has been closely followed by a fall of 0.06% in both the 70% and 85% LTV sectors. It’s only first-time buyers with a small deposit that won’t feel the benefit, as the average rate for a 95% LTV mortgage has stayed stationary at 3.63% so far this month.
Darren Cook, finance expert at Moneyfacts.co.uk, said:
“The cut to five-year fixed mortgage rates will be welcome news to those borrowers who are looking to lock into a slightly longer period and may be unsure which direction interest rates will move next amid the ongoing economic uncertainty. What will be certain for these borrowers is that their monthly mortgage repayment will remain unchanged for the next 60 months.”