Moneyfacts Reveals Slight Decrease in Average Five-Year Fixed Mortgage Rate

A view of houses in Thamesmead, southeast London, on July 27, 2021. (Yui Mok/PA Media)

The average five-year fixed-rate homeowner mortgage has fallen close to the 6 percent mark, while UK first-time buyers still struggling to afford new homes.

The financial information service Moneyfacts has reported a drop across all deposit sizes on the market for an average five-year fixed-rate homeowner mortgage. The figures show that the rate is edging down from 6.04 percent on Tuesday to 6.03 percent.

The last time borrowers could get an average five-year fixed deal below 6 percent was on Jul. 3, when the rate stood at 5.97 percent.

Those looking at a two-year fixed deal saw the average rate drop from 6.54 to 6.53 percent.

It comes after the Bank of England decided to keep interest rates on hold for the first time in almost two years. Last week, the bank voted against raising the 5.25 interest rate, ending almost two years of consecutive hikes.

While it is unclear whether the bank rate has reached its peak, some mortgage lenders chose to cut their rates this week.

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HSBC UK reduced a selection of mortgage rates by up to 0.16 percentage points, while Santander UK reduced them by up to 0.50 percentage points.

The expectation that the BoE bank rate has peaked is now the predominant view on the market, said mortgage expert at property website Rightmove, Matt Smith. There is still a risk of the rate rising again this winter, which is “sizeable but decreasing,” he added.

“We’ve seen mortgage rates edge down slowly in recent weeks, in response to the positive inflation figures. But it’s difficult to predict when we could start to see more sizeable drops in mortgage rates, mostly because their movement is dependent on several factors,” Mr. Smith said.

He added that it was difficult to predict when more sizeable drops in mortgage rates will happen. Among the factors impacting mortgage rates are inflation, swap rates, and unexpected shocks to the economy.

It’s thought interest rates will remain flat for most of 2024, before starting to come down, according to Rightmove. Borrowers can expect fixed-rate mortgage products to start to take on some of these reductions.

Continued stability in the mortgage market is likely in the final quarter of the year, which bears good news for home-movers after a “rollercoaster twelve months for mortgage rates” since last September.

First Steps

The reality for homeowners and those on the hunt for a new home remains challenging. Faced with the cost-of-living crisis, high inflation and high mortgage rates, less people will be able to buy their first home this year.

According to mortgage lender Halifax, the number of first-time buyers in 2023 will fall by more than a fifth.

Halifax estimated that about 186,000 people will buy their first home this year. This is 22 percent fewer than in 2022. In 2021, close to 270,000 first-time buyers got on the property ladder.

Renters find it harder to save money due to the surge in private rental prices. In the year to August, they rose by 5.5 percent, with London seeing the highest annual percentage change.

High rental prices make it harder to raise a deposit for those trying to get on the property ladder. It remains “a significant hurdle,” said Halifax’s director of mortgages Kim Kinnaird, noting an increase in the average age (32) of a first-time buyer in Britain.

An average deposit for first-timers, eyeing a property in London, is £113,000. Ten years ago, the amount was £31,060.

One of the government’s most well-known affordable home ownership schemes—Help to Buy: Equity Loan—closed to new applications last year. This created another barrier for first-time buyers, in a time of inflationary pressures and rising interest rates.

Other government offers include the mortgage guarantee scheme, shared ownership and the right to buy, which involve various levels of financial discounts and obligations.

PA contributed to this report.