Fixed and tracker rates fall to all time low

Average fixed and tracker mortgage rates have fallen to their lowest level since Moneyfacts started recording them in 1988.

The average rate of a two-year fix currently stands at 4.32%, a three-year fix at 4.92% and a five-year fix at 5.29%.

Meanwhile the average rate for a two-year tracker is 3.37%.

Michelle Slade, a spokeswoman for Moneyfacts, says the fall in rates is due to receding expectations of an increase in the Bank of England base rate, which has caused the cost of funding on the swap rate market to reduce.

She says: “Lenders appear to be applying cuts equally across all LTV tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands.

“While rates may still fall slightly further, it is likely that some lenders will instead opt to make existing competitive deals available to borrowers with smaller deposits.”

But Slade adds that lenders do not appear to be passing the full drop in the cost of funding to mortgage rates, as the spread between the cost of funding and average mortgage rates has reached its highest level since December 2010.

She says: “Lenders are always slower at bringing rates down than they are at raising them and as soon as the market expects a base rate rise, mortgage rates will start to increase again.

“If borrowers delay too long to secure a new mortgage deal, they could find that they miss out on some of the lowest rates ever seen.”