Average mortgage rates dropped to the lowest level on record as the property market officially reopened for business this week, but banks have not cut costs by as much as the Bank of England rate cut.
Finance experts at Moneyfacts say the average two-year fixed rate is now at a record low of just 2.09 per cent.
Although average rates have hit a low, individual deals have been cheaper in the past, despite the Bank of England slashing base rate to a record low of 0.1 per cent.
For example, the cheapest two-year fix was 0.99 per cent in September 2017, compared to 1.09 per cent today. However, the current cheapest five-year deal, a 1.34 per cent 60 per cent loan-to-value fix from TSB, is the cheapest on record.
Buyers with a small deposit may still find their options severely limited for the time being
The mortgage category with the biggest average fall in rates was five-year fixes at 0.39 per cent but this fails to match the 0.65 per cent that the Bank of England has shaved off base rate.
Borrowers are also facing a coronavirus squeeze, as the number of deals available to choose from has dropped from 5,222 before the Government introduced its nationwide lockdown to just 2,566 at the start of May.
It’s the more expensive, high loan-to-value deals that lenders have withdrawn, which accounts for the very low average rate.
Consequently, it might not be cheaper for a buyer with a small deposit to get a mortgage – in fact, they may find their choices severely limited.
The Bank of England cut base rate twice in swift succession in the face of the coronavirus crisis, with the benchmark borrowing rate falling from 0.75 per cent to 0.25 per cent and then down to 0.1 per cent.
Yet, the best mortgage deals have only seen a fraction of that shaved off their rates – with the lowest five-year fixes reducing from just below 1.5 per cent to 1.34 per cent.
Almost half-a-million property transactions stalled in lockdown, according to Government estimates, with many of those able to restart from Wednesday 13 May.
Sellers can now brave the market and buyers can go house hunting again, following strict guidance published by the Government designed to get people moving again and kickstart a vital part of the economy.
However, hopeful first-time buyers – who would have had a lot of mortgage options at the start of the year – now look set to pay more to borrow the same amount.
| Average rates | Mar-20 | May-20 | Difference |
|---|---|---|---|
| Two-year fixed rate (all LTVs) | 2.43% | 2.09% | -0.34% |
| Two-year fixed rate (75% LTV) | 2.29% | 1.97% | -0.32% |
| Two-year fixed rate (90% LTV) | 2.57% | 2.40% | -0.17% |
| Two-year fixed rate (95% LTV) | 3.26% | 3.36% | 0.10% |
| Five-year fixed rate (all LTVs) | 2.74% | 2.35% | -0.39% |
| Five-year fixed rate (75% LTV) | 2.56% | 2.20% | -0.36% |
| Five-year fixed rate (90% LTV) | 2.91% | 2.65% | -0.26% |
| Five-year fixed rate (95% LTV) | 3.58% | 3.62% | 0.04% |
| Source: Moneyfacts | |||
Eleanor Williams, finance expert at Moneyfacts, said: ‘Product choice for borrowers requiring higher loan-to-value deals has plummeted for both two and five-year fixed rates.
‘Looking at products often favoured by first-time buyers, at 90 per cent loan-to-value, the number of products available has dropped by 270 and 243 for two and five-year fixed rate options respectively.
‘First-time buyers are therefore likely to feel the effect of the current circumstances even more keenly than most. These borrowers are more likely to be looking for a low-deposit mortgage product, which as a sector of the market has contracted significantly.’
The cheapest two-year fixed rate currently available for those with a 10 per cent deposit is from HSBC and has a rate of 1.79 per cent.
Moneyfacts also found that in some areas, the mortgage market is starting to show green shoots of recovery as lenders tentatively begin reintroducing deals.
Williams said: ‘We are now beginning to see lenders relaunching products within their ranges, and some providers have eased the loan-to-value caps they put in place early in the crisis.
‘Mortgage lenders are still open for business and, for those eligible, rates are low.’
She advised those wanting to remortgage or restart their purchase to speak to their lender or an independent qualified adviser.
‘People can lock into a low rate now,’ she added, though lenders may not keep rates so cheap as activity in the housing market begins to increase again.
Two-year fixed rate deals for those with a 25 per cent deposit are now on average 0.32 per cent lower than they were in March.
Meanwhile, those with just a 5 per cent deposit will find two-year fixes marginally more expensive, with rates on average 0.10 per cent higher than they were before the pandemic.
You can find the best deals for yourself using This is Money’s mortgage finder tool.
You can also compare costs yourself using our true costs mortgage calculator.
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