Two-year mortgage rates have hit record lows, driven by increasing competition amongst lenders, according to new research.
The latest data from Moneyfacts shows that the average two-year fixed rate has fallen 2.55% to 2.26% in the last year.
Meanwhile, the average two-year tracker has fallen from 2.01% to 1.82% over the same period.
Charlotte Nelson, finance expert at Moneyfacts, said that while the average two-year fixed rate had stalled in recent months it appeared that the trend of falling rates is “now back on track”.
“The downward trend can largely be explained by the intense competition amongst lenders looking to offer the best possible deals in the market. Lenders are perhaps starting to feel the pressure of an increased number of their customers sitting on their standard variable rate, knowing that if the Bank of England decides to increase rates, a substantial chunk of their mortgage book could move to another provider almost overnight.
“This may be the catalyst that is keeping rates low, as providers aim to lock customers into a deal with them.”
Given mounting inflation and the Bank of England hinting at a base rate rise, falling rates are the last thing many would have expected.
Nelson said that while rates were falling for now, borrowers will not necessarily need to see a base rate rise for rates to start to increase again as there will come a point where the only way to go from another record low is up.
“Borrowers sitting on their SVR or coming to the end of their deal may be wise to consider a low fixed rate now, before it’s too late,” she said.
Since the financial crisis in 2008 mortgage rates have steadily fallen.
The Bank of England cut interest rates in August 2016 from 0.50% to 0.25% – the lowest on record and the first interest rate cut since 2009 when the financial crisis was at its peak. This led to a number of lenders slashing their rates.
Last month, Bank of England governor Mark Carney hinted a rate rise could be on the cards after he said the tolerance of rising inflation from the Bank’s Monetary Policy Committee could disappear.
In June, the Bank of England’s Monetary Policy Committee voted by a majority of 5-3 to maintain the Bank Rate at 0.25% – the closest it has come to raising rates since 2007.
The decision comes after inflation hit a four-year-high of 2.9% in May – well above the bank’s target of 2%.
If the Bank decides to hike interest rates, the knock on effect could see lenders raise mortgage rates accordingly.
However, despite the possibility of a rate hike to 0.50%, many experts expect rates to stay low and any rise to be gentle.
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