Mortgage interest rates for borrowers with small deposits of 5-10% are at their lowest point in more than three years, new figures show.
According to data from Moneyfactscompare.co.uk, the average two-year fixed rate with a loan-to-value (LTV) of 95% is now 5.41%.
That’s the cheapest since September 2022, when it was 4.51%, just before the Liz Truss mini-Budget sent mortgage rates soaring.
The average two-year fixed deal with an LTV of 90% has fallen to 5.24%, which is also the lowest since September 2022, when it was 4.27% just before rates rose.
The two-year fixed rate has seen a sharper decline in the past month and year than the five-year rate.
The average two-year fixed rate for all LTVs is down 4 basis points from last month and 45 basis points from this time last year, to 4.94%.
The average five-year interest rate has fallen by 1 basis point since last month and by 8 basis points since November last year to 5.01%.
The average standard variable interest rate (SVR) remained unchanged month-on-month in November at 7.27%.
The highest recorded average SVR was 8.19% in November and December 2023.
The total product choice decreased month-on-month to 6,918 options.
The availability of deals with a loan-to-value ratio of 95% increased to 465 options, the highest number since March 2008.
Moneyfacts finance expert Rachel Springall says that while borrowers with small deposits will be happy to see costs fall, the uncertainty surrounding the upcoming Budget is causing many buyers to take a wait-and-see approach.
She says: “So far, the rumor mill has produced a variety of ideas that could impact borrowers from different parts of the market.
“On the one hand, the idea of abolishing Stamp Duty Land Tax (SDLT) and a new way of taxing could work to the benefit of first-time buyers, saving them thousands of pounds up front, helping them take that crucial first step onto the property ladder.
“However, as a double-edged sword, creating a new property tax that places the burden on sellers could lead to homeowners refusing to move, putting pressure on supply.
“Supply could worsen if the capital gains tax exemption on primary residences is abolished and the annual tax levy known as the ‘mansion tax’ becomes a reality.”
Mary-Lou Press, president of the National Association of Estate Agents, agrees that the drop in mortgage rates is welcome and that the broader affordable housing shortage should be addressed as a priority.
She says, “WEven though lower monthly costs can allow more people to access financing, the fundamental problem of a lack of housing supply remains.
“Without a meaningful increase in the number of affordable homes for sale, more tailored mortgage deals alone will not solve the wider problems in the housing market.
“It would be welcome if the UK Government used the upcoming Budget to implement policies that boost housing supply in all rental areas, support sustainable lending and give consumers the confidence to move.
“Measures that stimulate housing construction and maintain a balanced, stable property market will ensure that falling mortgage costs translate into real opportunities for households, rather than further upward pressure on prices.”