Mortgage rates have been consistently falling for the past few months, with average variable and fixed rate deals both reaching record lows. But, Moneyfacts can reveal that another milestone has now been reached, with the average two-year fixed rate deal falling below 3% for the first time ever!
The figures show that, at the start of March 2015, the average rate for a two-year mortgage stood at 3.06%. This was already a record low, but it didn't stop there, as by 30 March it had dropped to 2.98%, even more significant as it's the first time it has ever fallen below the 3% mark. The table below shows this in more detail.
As you can see, reductions were witnessed across all loan-to-value (LTV) bands, with the most significant being towards the higher end of the scale. This resulted in the overall drop of 0.08%, bringing the two-year average to a whole new level.
Analysis suggests that the drop in rates is due to a combination of increased competition and falling SWAP rates – the rate at which banks lend money to each other – thanks to mounting speculation that base rate will remain at 0.5% for a long time. There are even suggestions that it could be cut further thanks to falling inflation, which will again have an impact on SWAP rates, making it cheaper for providers to borrow money to lend out to consumers.
Sylvia Waycot, editor of Moneyfacts.co.uk, commented:
"The drop to zero inflation has resulted in the constant speculation of a Bank of England base rate rise being kicked to the kerb for the time being. Removing that concern has made it easier for lenders to drop some rates in order to be more competitive.
"Another happy consequence of zero inflation is that those on a higher LTV become less of a lending risk because the money in their pocket stretches further, making the risk of tipping into mortgage arrears less likely. Lenders normally factor this risk into the overall rate charged, so as the risk has lessened, so has the rate."
But just what does all this mean for borrowers? Well, essentially, it means that now could be a great time to consider your options! Rates are at record low levels, and even those at the higher end of the LTV scale are feeling the benefits. The competition for the limited number of new borrowers is particularly intense, hence the fall in rates for higher LTVs.
So, whether you're looking to move up the ladder or take the first step with a 95% LTV mortgage, you've got plenty of low-rate options to choose from. But, don't think you can rest on your laurels, as although rates are falling at the moment, they won't stay that way forever.
"We sit on a virtual see-saw with inflation balanced at the other end: next month inflation could rise or fall, and therefore two-year fixed mortgage rates could just as easily change, too," added Ms Waycot. So, if you've been considering taking the plunge, now is definitely the time to get serious. Check out our best buys to see if you could benefit.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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