The cost of low-deposit mortgages has fallen to its lowest level in more than three years, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.
The average 2-year fixed rate at 95% loan-to-value (LTV) now stands at 5.41%, while the equivalent 90% LTV rate has dropped to 5.24% – both at their lowest points since before the September 2022 mini-Budget.
The reductions come as the number of 95% LTV mortgage products has increased to 465, the highest level since March 2008.
Lenders have also lowered the average rates across the broader market, with the typical 2-year fixed rate now at 4.94% and the 5-year equivalent at 5.01%.
The Moneyfacts Average Mortgage Rate has dipped to 4.99%, down from 6.07% a year ago.
Shorter-term fixed rates have seen the most movement over the past 12 months.
The average 2-year fixed rate has fallen by 0.45% since November last year, compared with a 0.08% drop for 5-year fixes.
Meanwhile, the average 2-year tracker rate has fallen to 4.66%, although the average Standard Variable Rate (SVR) remains unchanged at 7.27%.
Activity in the market has also shortened the average shelf-life of a mortgage deal to 21 days, down from 22 days last month, while total product availability has dipped slightly to 6,918.
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers with a limited deposit of just 5% or 10% will be thrilled to see the cost of a two-year fixed mortgage dip to a three-year low, before the ‘mini-Budget’ in September 2022.
“The number of deals available to borrowers at 95% loan-to-value has also improved, with the pool of deals at its highest count since 2008.
“The Government has been very vocal that it expects lenders to do more to boost UK growth, so the rise in choice and drop in cost is a healthy step in the right direction.
“However, deals at 95% loan-to-value only represent 7% of the residential mortgage market, so there is more room for improvement. Despite these moves, there will be borrowers who feel stuck due to a lack of supply in affordable housing.”
She added: “It may be a relief for borrowers to see fixed mortgage rates moving downwards once more. The Moneyfacts Average Mortgage Rate dipped below 5% and the activity among lenders led to a drop in the average shelf-life of a deal to 21 days.
“These movements will be positive news to those refinancing. Indeed, in November 2023, the average two-year fixed mortgage rate was 6.29%, compared to 4.94% now.
“That is a difference of £203 per month in repayments on a £250,000 mortgage over 25 years.
“There will also be millions of borrowers who secured a cheap five-year fixed rate back in 2020, who are due to refinance, so they do need to prepare themselves for higher mortgage repayments. S
“eeking advice to assess the latest deals and not to fall onto the revert rate is essential, particularly as the average SVR is 7.27%.
“It is worth noting that lenders are already working hard to price down their mortgages to entice new business as part of their end of year targets, supported by recent falls in swap rates. In addition, even existing borrowers can choose to lock into a new rate around six months before their current deal ends in most cases.”
