A lot can change in a year. In October 2017, Theresa May was making noises about seeing off a leadership challenge amid party infighting, Jeremy Corbyn talked of preparing for an upcoming general election and all the press could write about was Brexit. Well, OK – only some things change, including mortgage rates.
According to the rate spotters at Moneyfacts, October of this year is significant in that it marks the end of the “lowest ever” average two-, three- and five-year fixed mortgage rates. Last year, the average two-, three- and five-year rates came in at 2.21, 2.49 and 2.76 per cent, respectively. These have now all risen, to 2.52, 2.72 and 2.91 per cent.
Moneyfacts finance expert Charlotte Nelson opines: “October 2017 will be known not only as the month of the lowest fixed mortgage rates on record, but also as the turning point in the market. The past year has been a challenging time for providers as they have had to wrestle with two base rate rises for the first time in years, while at the same time needing to remain competitive in order to protect their mortgage book.
“This conflict of interest has meant average fixed mortgage rates haven’t followed the Bank of England’s rate rises entirely. In fact, data shows the average two-year fixed mortgage rate has risen by just 0.28 per cent in the last 12 months, instead of the full 0.50 per cent base rate increase.”
Nelson points out that after the August rate rise, when the average two-year fix hit a high of 2.55 per cent, two-year rates actually fell: In early October the average rate came in below 2.50 per cent for the first time since April (although the average rate has since started to climb, touching 2.52 per cent on 19 October).
Nelson attributes this recent period of falling rates to increased competition and the time of year, saying providers may be looking to boost lending with end-of-year targets in sight.
Lucky number 95
Despite rates marching upwards, not all is gloomy for would-be buyers – especially for those looking to buy a property for the first time. Moneyfacts has worked out that the fixed rate for 95 per cent LTV mortgages is the lowest on record, with the average two-year fix at 3.72 per cent and the five-year fix at 4.08 per cent. A year ago, these figures stood at 4.16 per cent and 4.50 per cent, respectively.
“Again, this is because of competition,” Nelson says. “High LTV borrowers are seen as the lifeblood of the market, and lenders are moving into more niche areas in order to attract them.”
Evidence of this is seen in the fact that in the last 10 years, the number of 95 per cent LTV deals has jumped from 80 to nearly 350.