Fixed mortgage rates have experienced a ‘substantial’ fall in November with some two-year deals looking particularly attractive, data from L&C Mortgages has revealed.
Coventry Building Society and Principality Building Society have been driving competition in the two-year fixed rate mortgage market by launching deals with rates of less than 5%.
Since the mortgage market chaos which followed September’s infamous mini-Budget average mortgage rates had climbed beyond 6%.
But towards the end of November, Moneyfacts.co.uk, reported average rates had begun to fall again to just below the 6% mark.
The fact some lenders are coming in with deals below 5% will be welcome news to borrowers and could signal more price drops to come.
According to L&C Principality is offering a rate of 4.65% fixed for two years for borrowers who need to borrow 65% of their property’s value (65% LTV). This deal comes with an £895 fee.
Meanwhile, Coventry is now offering a two-year at 4.85% to 65% LTV with a £999 fee.
It comes in the ween before the Bank of England is expected to hike interest rates again. The decision is due on Thursday 15 December.
David Hollingworth of L&C, said: “The roller coaster ride for borrowers continues with potential for confusion as fixed rates come back down despite the prospect of a further increase in base rate as early as next week.
“The reductions in fixed rates offers those whose natural inclination is to put security into their mortgage payment the chance to do so at a more appealing rate and that shouldn’t stop them being able to review again if rates come down further.”
Why switch deals?
With rates still relatively high compared to a year ago, borrowers may wonder whether it’s worth holding out for interest rates to fall until they remortgage.
But L&C is warning this would mean paying a more expensive Standard Variable Rate (SVR). The broker’s data shows many of these are increasing in line with the Bank of England’s base rate.
It revealed Virgin Money is the latest to feed through the last rate hike with its SVR lifting from 6.49% to 7.24%.
This would mean, said David, a borrower with a £150,000 25 year mortgage at 7.24% would be paying £1083.24 per month. compared to £842.29 per month on the two-year fixed rate of 4.60% from Principality. This is a saving of £241 per month or more than £2890 per annum.
He added: “Taking some action is likely to be more cost effective than drifting onto standard variable rate where rates continue to feed base rate increases through to borrowers and many are around the 6.50% with some in excess of 7%.
“Taking advice will not only help you understand the options available but also help you keep abreast of any further shift in rates.”
Is it worth considering a tracker mortgage?
L&C is also flagging up tracker mortgages as an alternative option for some borrowers.
These are deals which track the Bank of England’s base rate and they have seen a higher take up because some borrowers feel, despite the fact they could climb further, the initial rates on offer still look attractive.
And, L&C revealed, some tracker deals also have the added benefit of no early repayment charges, which provide more flexibility in these uncertain times.
L&C highlighted a deal from Barclays, which offered a two-year tracker at 0.40% above base rate, giving an initial pay rate of 3.40%, to 60% LTV with a £999 fee. It carries no ERC at any time.
If you need some more advice or guidance on your mortgage options, speak to a mortgage adviser or broker.
