Mortgage watch: rates falling, availability up

Despite the Bank of England's recent base rate increase, the cost of fixed rate mortgages is falling, with sub 4% products being offered for the first time since the September mini-budget. 

Mortgage rates

Figures released last week by the Bank show that average mortgage rates fell last month, the third in a row. The average 2 year rate dropped from an autumn high of 5.9% to 4.67% by end of January, while the 5 year rate fell further, from 5.67% to 4.42%.

Reductions continued into February, as fierce competition between lenders has seen the reappearance of the sub 4% fixed rate. HSBC led the way with its lowest rate at 3.99%, immediately followed by Yorkshire Building Society at 3.98% and Virgin Money at 3.95%.

However, the Bank's increase in base rate means that borrowers on tracker mortgages will see an immediate increase in repayments. Reportedly. the cheapest available option is base plus 0.14%, so 4.14%.

The five year fixed rate being lower than the 2 year fix indicates that markets expect interest rates to fall in the medium term, once the current round of tightening peaks.

Availability

As rates fall, the number of available products has increased. There are now 4,300 mortgage options available according to Moneyfacts, up from 3,600 a month ago and almost double the number in October, when interest rates were hit by financial uncertainty.

The shelf life of mortgage products has also increased, from 15 days in early January to 38 days today, a welcome indication of stability returning to the mortgage market.

Expat mortgages

Mortgage pricing is also falling for UK expats. A large broker focused on the expat market reports that at least one lender is offering rates with a margin of just 1% above UK Base Rate and that many lenders are returning to the expat market with competitively priced products.

Guy Stephenson of Offshoreonline commented "We have not seen such margins in probably ten years but it is another signal that markets are returning to a new normal".

Note

This article highlights a trend in the UK mortgage market. The rates quoted are for owner-occupier mortgages. As has always been the case, buy to let mortgages are priced at a slight premium to standard residential mortgages.