Mortgage rates have fallen to nearly 5% this week but the choice of products has also reduced, the latest data from Moneyfacts has revealed.
Both the average two-year fixed rate and five-year version are currently 5.01% which is the lowest since September 2022.
Rewind back to a year ago to August 2024 and a two-year fixed mortgage was averaging 5.77% whilst the five-year fix was 5.38%.
Even in the last month typical two- and five-year fixed rates have fallen by 0.08% and 0.07% respectively, according to Moneyfacts’ data.
But, whilst borrowers are benefiting from lower interest rates and lender price cuts, there are fewer products from which to choose.
Moneyfacts’ analysis showed product choice overall fell month-on-month, to 6,842 options, cancelling out the prior monthly rise of choice.
The good news is, compared to this time last year the number of mortgages has risen.
Rachel Springall, finance expert at Moneyfacts, explained: “Lenders had mixed attitudes to pricing during July, and the churn of products resulted in a dip in choice, cancelling out the previous month’s rise.
“In spite of the perhaps cautious approach, rate cuts prevailed to push the Moneyfacts Average Mortgage Rate down to 5.04% at the start of this month, edging ever so closer to dipping below 5%.”
Will mortgage prices fall further in 2025?
The Bank of England’s (BoE’s) interest rate cut last week, which saw the base rate fall by 0.25% to 4%, may raise hopes of more mortgage cuts.
But Springall thinks lenders will use a ‘more low and slow approach’ to making cuts over the next few weeks. This is because the BoE’s decision was a close call with four out of nine members voting against a cut. This led to a rise in Swap rates, which influence lender pricing.
She added: “Piling onto this, the markets could react badly to any significant decisions made in the Autumn Budget, an event which can be a blessing or a curse for future rate setting.
“If inflation gets out of control or economic uncertainties spike, borrowers can forget about more base rate cuts by the Bank of England this year.”
What’s the outlook for first-time buyers
Moneyfacts’ data shows first-time buyers with a small deposit of 5% will have seen little change to options since the Government replaced the Mortgage Guarantee Scheme in July.
But the data also shows there has been a drop to fixed rates for the first-time buyer focussed products.
Springall said: “The big difference to first-time buyers and those borrowing at higher LTVs as the year progresses will be the changes to the loan-to-income (LTI) rules.
“Lenders would be wise to do as much as they can to support new buyers, and it remains essential borrowers seek advice to navigate the mortgage maze.”
