The events of recent weeks have had a definite impact on the mortgage market, and it looks like it could be positive for borrowers – much of the uncertainty that has plagued the market recently has dissipated, and this, together with intense speculation that a cut to base rate is imminent, has caused average rates to fall once again.
Back on form
Our latest figures show that the average two-year fixed mortgage rate fell by 0.03% this month to stand at 2.55%, just shy of the joint-record low of 2.54% recorded in February and May. This would seem to suggest that the path of mortgage rates is returning to its previous rate-cutting pattern – prior to this, it looked as though rates had started to head upwards, but this has been short-lived in light of a new-found measure of certainty in the market.
The latest fall comes despite the fact that availability in the market has notably reduced, with the number of mortgages available falling by 110 this month to stand at 3,490. Product losses were widespread across the market, as were rate cuts, with the vast majority of loan-to-value (LTV) tiers being impacted – but it's higher LTV tiers that saw the biggest adjustments.
Indeed, this sector of the market experienced the most notable rate cuts, with the average two-year fixed rate at 90% LTV down by 0.08% (to 2.95%) and the 95% LTV rate falling by 0.05% to 4.11%. This may come as welcome news to first-time buyers seeking a low-deposit mortgage, but it's worth pointing out that availability in this sector has also dipped, so although rates have fallen, suitable deals could be harder to find.
This in itself shows that the market is reacting swiftly to recent events – products at the higher end of the LTV scale are typically higher rate but they're also higher risk, suggesting that providers are becoming slightly more cautious in their lending activities.
Sign of things to come?
The fact that average rates have fallen could therefore be partly explained by a larger number of higher-risk, higher rate products being removed from the market – indeed, rates at the lower end of the LTV scale actually edged up, as did product availability at these levels – which could suggest that providers are set to become less willing to lend in seemingly high-risk sectors.
This renewed level of caution can also be seen in terms of renewed interest in longer-term mortgage deals. Additional figures show that the number of 10-year fixed rate mortgages available has seen a definite spike in the last year, with there now being a total of 112 such deals on the market, an increase of eight in the last month and up a notable 43 compared with this time last year.
This could be because, although certainty appears to be returning, the market is still volatile: the full economic impact of recent weeks is yet to be realised, and with that comes concerns regarding consumer finances. There's the chance that affordability issues could come back to the foreground, and if that were the case, providers could become more reluctant to lend and the emphasis on fixed rate mortgage deals could continue to heighten.
Indeed, long-term mortgage deals are able to give the provider, as well as the borrower, security over the long-term – and providers are actively trying to make these products more appealing as a result. Features such as lower redemption penalties are now commonplace, as is portability, further highlighting the desire for provides to focus on – and compete in – this sector of the market.
It could prove to be a beneficial move, too. There's mounting speculation that base rate will be cut, if not tomorrow then next month, and while this could cause mortgage rates to fall even further – particularly in the variable sector (the average two-year tracker mortgage has already fallen by 0.06% this month to 2.01%) – there's no guarantee of what will happen in the years to come.
Being able to budget effectively for the long-term could therefore be a welcome prospect, particularly if you're able to snap up a low-cost deal now. Similarly, if providers are concerned about affordability, they may not offer the lowest variable rates to all borrowers, so fixing could be the only option. Quite simply, we don't know what's coming next, but we do know this – there are some great mortgage deals around at the moment, so get searching!
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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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