Is the Average Five-Year Mortgage Hitting Record Lows in 2023?

Recent data shows that average mortgage rates in the UK have fallen, with five-year fixed-rate mortgages now below 5% for the first time since May 2023. This decline is expected to ease financial pressures for borrowers as competition among lenders increases.

Last updated: 22 October 2023 (BST)

Key Takeaways

• The average five-year fixed rate mortgage has dropped to 4.99%.
• Two-year fixed rate mortgages are now averaging 4.97%.
• Increased competition among lenders has led to a wider variety of mortgage products.
• 900,000 fixed-rate mortgage deals are set to expire in the latter half of 2025.
• Current rates remain higher than pre-2022 levels.

Current Mortgage Rates Overview

According to Moneyfacts, the average five-year fixed-rate mortgage fell to 4.99% as of Thursday, a decrease from 5% just a day earlier. Simultaneously, the average two-year fixed-rate mortgage also saw a decline, dropping to 4.97% from 4.98%. This marks a significant shift in the mortgage landscape, particularly as the two-year rate dipped below 5% earlier in August for the first time since the economic turmoil initiated by former Prime Minister Liz Truss's mini-budget in September 2022.

Implications for Borrowers

Adam French, head of news at Moneyfactscompare.co.uk, commented that these changes are "welcome news for borrowers." The gradual reduction in borrowing costs over the past year, coupled with strong wage growth, has slightly improved affordability for many prospective homeowners. However, French warns that the recent inflation rate of 3.8% is likely to prevent any further base rate cuts in 2025. As a result, borrowers may only see modest reductions in mortgage rates as lenders adapt to the likelihood of prolonged higher rates.

The Market Landscape

The mortgage market is responding to the recent shifts in interest rates by offering an increased number of products. As of now, there are 7,031 residential mortgage products available, up from 6,992 the previous day. This increase in options is indicative of lenders competing more aggressively to attract borrowers, especially given that hundreds of thousands are expected to re-mortgage this year.

Upcoming Re-mortgaging Trends

UK Finance has highlighted that approximately 900,000 fixed-rate mortgage deals are set to expire in the second half of 2025. This impending wave of re-mortgaging is crucial for the market, as many borrowers will be looking to secure favourable rates amid changing economic conditions. Homeowners should be prepared for the likelihood of higher rates compared to what they have experienced in previous years.

Historical Context of Mortgage Rates

The recent fluctuations in mortgage rates cannot be understood without acknowledging the broader historical context. The spike in mortgage costs following the fiscal event of September 2022 led to the highest borrowing costs since the 2008 financial crisis. This shift in the market dynamics has had a long-lasting impact on the affordability of home loans, making current rates still relatively high compared to pre-2022 levels.

What Happens Next?

As the mortgage landscape continues to evolve, borrowers need to stay informed about potential changes in the market. While there may be a slight easing in rates, the overall trend suggests that higher rates may persist for the foreseeable future. Homebuyers and those looking to re-mortgage should carefully consider their options and consult with mortgage advisors to find the best deals available.

Conclusion

The recent decline in average UK mortgage rates, particularly for five-year fixed rates, indicates a shift towards more competitive lending practices. However, with inflationary pressures and a significant number of fixed-rate deals expiring soon, borrowers must remain vigilant and informed as they navigate the complex mortgage landscape.

FAQs

What are the current average mortgage rates in the UK?

The average five-year fixed-rate mortgage is currently 4.99%, while the two-year fixed-rate mortgage stands at 4.97%.

How have mortgage rates changed recently?

Mortgage rates have seen a downward trend, with five-year fixed rates falling below 5% for the first time since May 2023.

What impact does inflation have on mortgage rates?

Current inflation rates can influence the Bank of England's decisions on base rates, affecting mortgage rates. Higher inflation may prevent further cuts in base rates.

How many mortgage products are available currently?

As of now, there are 7,031 residential mortgage products available, reflecting increased competition among lenders.

What should borrowers consider when re-mortgaging?

Borrowers should assess their financial situation, explore available mortgage products, and consult with mortgage advisors to find the best rates as fixed-rate deals expire.

Final Thoughts

With evolving mortgage rates and a competitive market, homeowners and prospective buyers are now facing new opportunities in financing. Staying informed about market changes and acting decisively can help secure favourable outcomes in the mortgage landscape. #MortgageRates #HomeBuying #UKFinance