The average mortgage interest rate has fallen below 5% – a milestone that means good news for anyone about to commit to a fixed interest rate.
At the end of the competition on Friday, Moneyfacts showed the average mortgage rate was 4.99% – down from 5.01% a week earlier – after a wave of price cuts from lenders.
According to Moneyfacts, interest rates briefly fell to this low on September 3. But before that, the last time average mortgage rates fell to this level was in September 2022, just before the infamous mini-budget, which sent mortgage prices soaring.
Rachel Springall, financial expert at Moneyfactscompare.co.uk, said: “Borrowers will no doubt be pleased to see mortgage rates fall, especially the millions who need to get off a cheap fixed rate before the year is out.
“It is a notable milestone to see the average Moneyfacts mortgage rate fall below 5%, although it remains uncertain how long this can be sustained.”
For borrowers nearing the end of the five-year fixed rate, the fact that the average mortgage is currently 4.99%, up from 2.60% in November 2020, means they are in for a big repayment jump.
According to Moneyfacts, the average five-year fixed-rate mortgage rate was 2.70% five years ago in November.
However, for those who sign a two-year contract, prices will have dropped significantly.
On the day of the miniBudget in September 2022, the Moneyfacts Average Mortgage Rate was 4.71%.
But immediately after the budget, it crossed 5% to reach 5.10% on September 30. Two weeks later it was 6.03%. The following year saw several ups and downs, but by November 2023 it was at 5.98%.
Over the past year, lenders have gradually reduced their fixed-rate mortgages. Last week, many of the bigger players cut interest rates despite fueling uncertainty in the property market ahead of the November 26 budget.
There is another factor to take into account. The Bank of England will make its next decision on Thursday on how it will set interest rates. Last time they kept interest rates at 4%, but experts are divided on whether there will be a cut or a hold this time.
In the meantime, they advise anyone taking out a mortgage to secure themselves now that rates are lower.
Springall added: “Stubborn inflation makes it less likely that the Bank of England’s Monetary Policy Committee will agree unanimously on implementing further cuts. In addition, uncertainty remains over what will be revealed within the Budget.
“That said, fixed rate mortgages do not always bend to the will of base rate cuts, but are instead more intrinsically linked to swap rates. Borrowers keen to refinance would be wise to seek advice to secure a new deal and not wait for further rate cuts from the Bank of England.”
Omer Mehmet, director of Welling-based Trinity Financespeaking to the Newspage agency, agreed with this advice. “Lenders need to meet their targets and a lack of activity in the property market is now a concern, he explained. “As a result, interest rates are being cut and it is starting to feel like a mini interest rate war is raging.
“With the Budget approaching, this could be a good time for borrowers to lock in their interest rates, just in case the Budget sends them spiraling upwards again.”