The average rate on a five-year mortgage deal has dropped 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 that the average five-year fixed mortgage rate had dropped below 6% for the first time in seven weeks. The reduction is good news for would-be borrowers but rates could “fall further still”, it suggested.
The housing market was thrown into disarray by Kwarteng’s radical plan for unfunded tax cuts, which triggered a spike in the long-term borrowing costs that underpin mortgage deals. His decisions have been largely reversed by his successor Jeremy Hunt in an attempt to calm the financial markets.
skip past newsletter promotion
Sign up to Business Today
Free daily newsletter
Get set for the working day – we’ll point you to all the business news and analysis you need every morning
Cost of living crisis: could taking in a lodger help you pay your bills?Read more
“Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement,” said Rachel Springall, a finance expert at Moneyfacts. “Borrowers who paused their homeownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.”
Home loans were already getting dearer after this year’s run of Bank of England interest rate increases. But about 1,700 deals were withdrawn amid the financial shock caused by the mini-budget and the average two- and five-year fixed mortgage rates rose sharply, from 4.74% and 4.75% respectively, to peak at 6.65% and 6.51% on 20 October. 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 is worth noting that rates could fall further still, but there is no clear answer as to how quickly that may be,” Springall added. “Indeed, it’s been about two months since both the average two- and five-year fixed mortgage rate breached 5%, but today only a handful of lenders are offering sub-5% fixed deals.
“Borrowers may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”