Article Summary

Introduction

For the first time since early July, fixed-rate mortgages have dropped below 5 percent, highlighting the brighter state of the property market. Yorkshire Building Society has introduced a fixed-rate offer at 4.99 percent, which is accessible to both homebuyers and those looking to invest. This deal is applicable to loans with a 75 percent loan-to-value ratio, allowing eligible applicants to apply if they either possess a minimum 25 percent deposit or have 25 percent equity in their homes. For someone with a £200,000 mortgage, this could result in monthly payments of £1,168 over a 25-year term, compared to the market average of £1,249 per month.

Keep in mind that this five-year deal comes with a £1,495 fee, and some customers might find better options with mortgages that have higher rates but lower fees. Following Yorkshire BS, the next attractive deal is from Virgin Money, offering a five-year fixed rate at 5.07 percent for homebuyers with at least a 35 percent deposit (a 65 percent loan-to-value ratio). HSBC provides a five-year fix at 5.09 percent for homebuyers with a minimum 40 percent deposit (a 60 percent loan-to-value ratio). Additionally, Nationwide offers a 10-year fixed-rate mortgage at 5.04 percent, accessible to homebuyers with a deposit of 15 percent or more (an 85 percent loan-to-value ratio). According to Rightmove, the average five-year fixed mortgage rate currently stands at 5.67 percent.

Other lenders cut rates

Rachel Springall, a finance expert at Moneyfacts, commented, “It’s fantastic to see Yorkshire Building Society launch such competitive deals. Borrowers seeking low-rate mortgages will find that the sub-5 percent five-year fixed deal is the most affordable rate in its category. The incentive packages offered with these new deals can also be appealing to borrowers looking to reduce their upfront mortgage costs.”

As for the reason behind the decline in mortgage rates, Yorkshire BS’ decision to reduce rates, including up to a 0.46 percentage point reduction in its 95 percent loan-to-value deals, is partly attributed to heightened competition among lenders. HSBC has also cut mortgage rates by an average of 0.15 percentage points, in addition to rate cuts in its buy-to-let range of up to 0.3 percentage points. Last week, there were rate cuts from Coventry BS, Nationwide BS, Accord, Generation Home, Barclays, and Clydesdale Bank. Anticipated future interest rate trends have also encouraged rate cuts, as reflected in swap rates.

Swap rates are agreements where two parties, such as banks, agree to exchange future fixed interest payments for future variable payments based on a predetermined amount. Mortgage lenders enter into these agreements to protect themselves against the interest rate risks associated with fixed-rate mortgages. In simpler terms, swap rates indicate what financial institutions anticipate regarding future interest rates. Currently, five-year swaps stand at around 4.56 percent, down from 4.74 percent at the beginning of the month.

Improvement in a short period of time

Just a short while ago, in July, five-year swaps were above 5 percent. Similarly, the two-year swap rate is now at 5.21 percent, compared to around 6 percent in early July. Ben Merritt, Director of Mortgages at Yorkshire Building Society, stated, “This week, favourable market swap rates created an opportunity to reduce our mortgage costs and provide the greatest benefit to those who typically face the greatest challenges, including first-time buyers.”

Regarding the possibility of mortgage rates rising again if the base rate increases, the Bank of England is widely anticipated to raise the base rate from 5.25 percent to 5.5 percent. However, some economists are betting on it remaining unchanged. This decision will follow the release of August’s inflation figures, which many expect to rise due to higher fuel prices.

This may influence the Bank of England’s decision regarding the base rate. If the base rate does increase, it is likely to raise costs for those with variable-rate mortgage deals. Nevertheless, it is unlikely to have the same impact on fixed-rate products, as Nicholas Mendes, Mortgage Technical Manager at broker John Charcol, predicts that fixed-rate deals will continue to decrease.

‘The MPC meeting is expected to either hold or rise by 0.25 per cent which will no doubt be the last [rate rise],’ says Mendes.

‘Even in the event there is a rate rise this has already been caked into fixed rate pricing.

‘As a result I expect to see fixed rate pricing on two and five year fixes continue to reduce.

‘While no one can accurately be confident, I wouldn’t rule out a five year fixed at 4.5 per cent by the end of the year based on current pricing trajectory.’

To learn about the property investment opportunities above, or to find out more about how property investment works, get in touch with the experts at North Property Group today.