Since the Bank of England base rate started making large jumps around the middle of last year, mortgage rates have increased significantly from the historic lows that borrowers had enjoyed since early 2015, when the average two-year fixed rate dropped below 2% and the average five-year fixed went sub-3%.
By the autumn of 2021, average two-year fixed mortgages were just 1.2%, with some borrowers able to access a rate of below 1%, and average five-year fixed rates were less than 1.3%.
But in December 2021, the bank rate started to rise from its all-time low of 0.1% and mortgage interest rates followed suit, as is the norm. Some mortgage rates spiked to over 6% following the Conservatives’ disastrous mini budget last September, although they did start to fall again once Rishi Sunak took over as leader.
By the time we entered 2023, the average two-year fixed mortgage rate was just under 5.8% and the Bank Rate stood at 3.5% with experts predicting further increases before the summer.
What’s happened to mortgage interest rates so far this year?
At the start of the year, even with the bank rate rising and inflation still high, mortgage rates continued their steady decline from the November 2022 peak. In February, two and five-year fixed rates were 5.44% and 5.2% respectively, then in March those figures dropped to 5.32% and 5%.
But by May, as repeated base rate increases failed to have an impact on inflation, lenders began to backtrack and in mid-June, the average two-year fixed mortgage rate rose to over 6%.
Individual rates have started to come down again
However, that is just an average figure, and the good news is that individual rates have started to come down again, mainly thanks to significant falls in the rate of inflation, which is now expected to reduce to 5% by the end of this year and then reach the target of 2% by the start of 2025.
In July, HSBC became the first high street lender to announce that it was making some cuts to its fixed-rate products, with other major lenders – including Nationwide, Barclays and Virgin Money - following suit over the next month. As it stands at the start of September, first-time buyers can access five-year fixed rates at well under 6% and two or three-year fixed products at slightly above 6%.
Five year rates are lower than two-year rates
It’s worth noting that it’s fairly unusual for a five-year rate to be lower than a two-year one, as has been the case for around a year now. This is the strongest possible indication that lenders do believe the base rate will fall significantly in the future. Despite a 14th consecutive increase at the start of August, to 5.25%, Capital Economics is now predicting that it will peak at 5.5% - lower than previously forecast – further supporting continuing falls in mortgage rates, which is better news for borrowers.
Speak to a broker
There are so many variables to consider, that if you want to buy or need to remortgage this year, we think it’s well worth talking to a mortgage broker sooner rather than later, allowing at least six months to go through the remortgage process. Mortgage applications can be held up if documents are missing, so make sure you gather what is required and provide them with all the necessary information as soon as possible.
Whatever your mortgages needs, at Mortgage Scout we can help you find a way to move forward with financing your existing home or new purchase. You can easily arrange an appointment via our website – and the work we do to recommend a mortgage for you is completely free of charge.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
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