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Fixed mortgage rates are falling despite no change to the Bank of England base rate in November, so borrowers who have been delaying looking for their next deal may now want to review their options.
Several big lenders have cut their fixed rates in recent days, including Barclays, Halifax and Skipton Building Society, making mortgage costs a bit more affordable for those needing to remortgage or wanting to buy.
According to financial website Moneyfacts.co.uk, mortgage rates for those with smaller deposits or a limited amount of equity if remortgaging have fallen the most. It says that by the start of last month, the average two-year fixed rates on low-deposit deals had dropped to their lowest points since before the “mini-Budget” in September 2022, falling to 5.24% for those with a 10% deposit and 5.41% for those looking to borrow up to 95% of the property value.
In the wider mortgage market, average rates have also eased, with the average two-year fixed rate falling by 0.04 percentage points to reach 4.94% in the month to November, while the average five-year fixed rate saw a slightly smaller drop of 0.01 percentage points to 5.01% over the same period.
Remember that these are only average rates, so it is possible to find fixed rates that are much lower than this, although the best deals are usually only available to those with a substantial amount of equity in their homes and an excellent credit score. At the time of writing, the cheapest two-year fixed available was at 3.55%, whilst the cheapest five-year fix was at 3.76%.
Here, we look at why fixed rates are falling, and some of the things you’ll need to consider when choosing your next mortgage deal.
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
Why are fixed rates falling when the base rate is rising?
Rather than being pegged to the base rate, fixed mortgage rates are predominantly determined by what are known as swap rates. These are fixed rates that institutions charge each other to borrow money.
Swap rates are influenced by various factors, including long-term market projections for the Bank of England base rate, as well as the broader economic outlook. Current swap rates suggest that the Bank of England base rate is likely to fall, possibly as soon as this month, now that inflation is showing signs of easing.
This explains why five-year fixed rate mortgages are slightly more expensive than two-year fixes, as markets expect rates to reduce over the next couple of years, and then perhaps to rise again slightly over the longer term.
Should I wait for fixed rates to fall further before locking in?
If you’re currently paying the standard variable rate (SVR) on your mortgage, you could lose more by waiting to remortgage than locking into a fixed rate, a tracker or a discounted rate.
The average standard variable rate is still eye-wateringly high at 7.42%, according to Moneyfacts.
Predicting mortgage rate changes is notoriously tricky, but the current consensus seems to be that we may not see further big falls in the cost of fixed rate deals, even if there is a base rate reduction in December, as markets have already factored this in. That means if you’re approaching the end of your existing mortgage deal, or have already reached it and are paying your lender’s SVR, you may want to start looking at what’s available now.
Rachel Springall, spokesman for Moneyfacts, said: “It may be a relief for borrowers to see fixed mortgage rates moving downwards once more, and is particularly positive news to those refinancing.
“The average two-year fixed rate in November 2023 was 6.29% compared to 4.94% now, which equates to a difference of approximately £203 per month in repayments (on a £250,000 mortgage with a 25-year term). As a result, anyone coming off a two-year fixed mortgage may find they are able to secure a deal at a lower rate and with cheaper monthly repayments than before.
“On the other hand, anyone who took out a five-year fixed mortgage in 2020 when rates were low is likely to see their monthly payments increase, as rates are significantly higher than they were five years ago.”
Learn more about this in our article Are you facing a mortgage timebomb?
How can I protect myself from higher mortgage costs?
If you’re currently locked into a low fixed rate which still has a while to run, you might want to consider overpaying your mortgage to reduce the amount you owe.
This means that if you then have to remortgage to a higher interest rate when your current deal ends, your mortgage balance will be smaller, helping to keep your monthly payments down.
Even though low deposit mortgage rates have fallen, mortgage lenders still charge higher rates if you want to borrow a higher proportion of the property value. So, for example, if you want a mortgage that’s equivalent to 90% of the property’s value, you’ll pay more than if you want a mortgage that’s 75% of its value or 65%. Overpaying your mortgage now could therefore help you secure a better mortgage rate in future.
You can find out more about making mortgage overpayments in our guide Should I overpay my mortgage? and how to cope with steeper costs in our article 8 ways to manage higher mortgage payments.
Is it better to go for a fixed or variable mortgage rate deal?
If you’re thinking about remortgaging, you may be wondering whether to opt for a fixed rate or a variable tracker deal. There’s no ‘one size fits all’ answer – a lot will depend on your budget and how much you’d worry if the Bank of England raised interest rates further. If the thought of mortgage rates rising would turn your hair grey overnight a fixed rate mortgage may be the best option for you, although if you think rates are likely to come down soon, a tracker rate may be the right decision.
However, tracker deals are more uncertain, and if the base rate rises in future, your mortgage rate will rise immediately and by the same amount. In today’s current uncertain times, when many of us are already finding it difficult to make ends meet, that may be a concern. Find out more in our guide Should I go for a fixed or variable rate mortgage?
Things to think about when choosing a fixed rate mortgage
If you want to take out a fixed rate mortgage, follow these tips:
- Check what your current lender can offer you. If you’re looking to remortgage soon, ask your existing lender which of their fixed rate deals you’ll be eligible for. That way, you’ll be able to easily compare their rates to other deals available on the wider market.
- Don’t just focus on the headline interest rates when comparing mortgage deals. Look at how much you’ll have to pay in fees and charges as well.
- Don’t assume that all mortgage lenders charge the same or take the same approach. They definitely don’t! Some mortgage lenders are less keen than others to lend to people who are self-employed, for example. Similarly, certain lenders may be more flexible in their approach to borrowers aged 50 and above.
- Get hold of a copy of your credit report a few months before you apply. Lenders are looking at credit reports much more closely than they did a few years ago.
- Talk to an independent mortgage broker. They will be able to tell you which bank or building society is more likely to lend to you and which deal is the cheapest for you.
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher costs.
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