The average 5-year fixed mortgage rate has dropped below 6% for the first time in seven weeks, Moneyfacts.co.uk data reveals.
The average 5-year fix now comes in at 5.95%, up from 4.33% on 1st of September. The average rate for 2-year fixes is 6.13%, up from 4.24% in September.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement.
“As the average 5-year fixed mortgage rate falls below 6% for the first time in seven weeks (5th October 2022 – 5.97%), borrowers who paused their homeownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.
“After the fiscal announcement (23rd September 2022) the average 2- and 5-year fixed mortgage rates rose sharply, but they are edging further away from their daily peak (20th October 2022).
“However, it is worth noting that rates could fall further still, but there is no clear answer as to how quickly that may be.
“Indeed, it’s been around two months since both the average 2- and 5-year fixed mortgage rate breached 5% (30th September 2022), but today only a handful of lenders are offering sub-5% fixed deals.
“Borrowers may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”
Reaction:
Natalie Hines, founder of Premier One Mortgages:
“We’re already starting to see 5- and 2-year fixed rates come down and I’m sure we will see other lenders follow suit over the coming weeks.
“I think we can expect to see further rises in the base rate but it will eventually settle somewhere between 3% and 4%.
“With swap rates now stabilising, the average fixed rate in 18 months’ time is likely to be not dissimilar to where we are now.”
James Myatt, mortgage broker at Embrace Financial Services:
“I expect fixed rate deals to continue to edge down slightly as 2022 draws to a close, as lenders look to hit end-of-year targets and service levels return to normality.
“I am finding the majority of borrowers are leaning towards two-year products (either fixed rates or trackers) with the hope and expectation that the current spike in inflation and interest rates will last 12-18 months, after which they will be in a position to negotiate more favourable terms in 2024/25 when their deals are up.
“Long term, or at least from 2024 onwards, I expect the Bank of England Base Rate to stabilise around 2% and expect this to lead to fixed rates returning to between 3% and 4%.”
Hannah Bashford, director of Model Financial Solutions:
“Fixed rates have been slowly coming down for the past few weeks with some lenders making weekly adjustments.
“I believe that we will see fixed rates around the 4%-5% mark over the next 12 months and for the base rate to increase in the first half of next year but eventually settling around 3%-4% I’d like to see rates settle to a more stable level of 3%-4% long term as this is manageable for most people and more realistic.
“I still wouldn’t like to put someone on a 5-year fixed rate over 5% as I think we will see rates come down.”
Paul Holland, mortgage broker at Henchurch Lane Financial Services:
“Following last week’s Autumn Statement, we expect swap rates, which predominantly influence fixed rates, to come down over the coming weeks.
“I believe fixed rates will be closer to 5% come Christmas and the New Year. The Bank of England will be aiming for their base rate to be somewhere in the 2%-3% range long term.
“This would result in cheaper fixed rates likely being somewhere in the 3%-4% bracket.
“I imagine this will take 18 months to two years to achieve, once we go through a period of austerity and inflation is brought under control.
“We’ve seen several positive rate reductions over the past week with lenders like Skipton, Halifax and Accord being at the top of the competitive list for fixed rates.
“Lenders are still reluctant to price too keenly as it would result in an onslaught of applications they’ll struggle to service as lots of people have held off selecting a lender for their mortgage intentions throughout October and November.”
Matthew Jackson, director of Mint FS:
“It feels like much of the turbulence in the mortgage market has passed, and although pricing has been drastically impacted, we are beginning to see a softening of prices and the market finding its natural level.
“Most forecasts now expect the Bank of England base rate to peak at or below 4% and hold there for a period of time.
“Swap rates are continuing to fall and I would expect to see 5-year fixes settle at between 4% and 5% depending on the loan to value.
“Long term, one of the side effects of the mini-Budget and increases in the base rate will be a switch of pricing, whereby 5-year rates are priced more keenly than 2-year fixed rates as lenders return to pricing by risk.”
Jonathan Burridge, founding adviser at We Are Money:
“SWAP rates have cooled and, depending on which fortune-teller you choose to follow, 5-year SWAPs could be 3% by the end of the first quarter of 2023.
“We are seeing the market act more conventionally again so this reduction is not unexpected.
“There is scope to see rates drop further provided nothing unexpected occurs.”
Justin Moy, founder at EHF Mortgages:
“We expect to see some further improvement in both 2-year and 5-year fixed rates over the coming weeks, given the continued improvements within the money markets, plus the hard reality that mortgage lenders only make money by lending.
“Given that lending has been way off normal volumes during the past two months, then some margin cutting will also be needed to stimulate activity.
“Even on reduced margins, mortgage lending is profitable and activity creates activity.
“When rates increase, mortgage holders will hold off making a decision on what they need to do with their new or existing mortgage, and as rates slowly slip back to some form of normality, again they will hold out for a better rate and not commit.
“So lenders will need to bring stability as much as a good price to the market, which we have started to see in recent days.
“The base rate looks set to settle around the 2%-3% range longer-term.
“We know it will likely increase in the next six months or so, and then fall back as inflation improves and any recession kicks in. But as healthy long-term pricing, that would feel about right.
“Fixed rates of around 3%-4% would be expected as a result. I sense we will see a few lenders start to aggressively price as the lending for 2022 is signed off, and targets for 2023 are set.
“I would expect to see High Street lenders in particular look for low loan-to-value business, typically below 60% LTV and remortgages, and build from that platform.
“We may see more of a mix of product types, with more tracker and discounted deals, too.”
Lewis Shaw, founder of Riverside Mortgages:
“Many lenders are now well into the 5% bracket for 5-year fixed rates.
“Five lenders currently have deals starting with a 4, which can only be a step in the right direction.
“However, the adage still rings true: rates take the elevator up and the stairs down.
“The Bank of England base rate is likely to reach 4% as a peak in 2023 and reduce to and settle around 3.5% through 2024, so the chances are fixed rates will hover around where they are for the foreseeable future.”
Paul Neal of Missing Element Mortgage Services:
“It’s great to see rates begin to trickle down, and hopefully this will be an ongoing trend with markets begging to settle.
“Swap rates have been gradually dropping for the past six weeks.
“I think we can get back to 4% in the not-too-distant future, which is still a decent rate.
“The issue is we have been spoilt with incredibly low rates for so long that anything above 3% seems high.”
Aaron Strutt, product and communications director at Trinity Financial:
“There is a selection of lenders offering sub-5% 5-year fixes at the moment and clearly these are much more attractive than the rates on offer a few weeks ago.
“While a 5-year fix at 5% isn’t that bad, it is still hugely more expensive than the deals we’ve been used to.
“The cost of funding has come down and we are expecting cheaper fixed rates in the coming months.
“If the property market continues to slow, lenders normally act and this is typically in the form of cheaper rates and more relaxed acceptance criteria.”
