Mortgage rates rise for third consecutive month

Consumers looking to lock into a new mortgage deal should act quickly, as mortgage rates continue to rise while the number of deals available is falling.

Figures to be published in the latest Moneyfacts UK Mortgage Trends Treasury Report show that the average two year fixed mortgage rate has increased by 0.14% month-on-month, up from 2.24% at the start of September to 2.38% on 1 October. Meanwhile, the average five year mortgage rate has increased by 0.13%, up from 2.49% in September to 2.62% in October. “This increase in rates is likely in part due to proportion of a rate that a provider needs to attribute to the risk of default, which may be a concern as a result of the economic outlook remaining so unclear,” said Eleanor Williams, finance expert at Moneyfactscompare.co.uk. “For example, the spectre of negative equity should house prices drop from their current levels is one that responsible lenders will be keen to mitigate, yet have no control over. Similarly, uncertainty around future employment levels and income as Government support schemes begin to unwind is another factor lenders may be considering.”

Average rates shown are as at the first available day of the month, unless stated otherwise. Source: Moneyfactscompare.co.uk

During the same period, the number of mortgage deals has fallen by 153, with 2,412 mortgage deals available in September to 2,259 deals available at the start of October. With lenders cautious about lending during the current economic uncertainty, it is not surprising to see that those with a 5% house deposit have the least number of deals to choose from – just 12 deals at 95% loan-to-value (LTV) are currently available, down from 14 available last month. Saying this, those with a 10% deposit will also find it challenging to get a mortgage in the current environment, as there are just 51 90% LTV deals available in October, compared to 62 that were available in September. To put this in perspective, back in March there were 391 95% LTV deals available and 779 deals available at a 90% LTV.

Average rates and product counts shown are as at the first available day of the month, unless stated otherwise. Source: Moneyfactscompare.co.uk

Commenting on the fall in deals available, Williams explained: “It is interesting to note that contributing to this decline in the overall number of mortgages available, all LTV tiers bar two have seen product numbers fall below levels seen in May 2020, which followed significant mass withdrawals as the impact of the pandemic and subsequent lockdown were felt across the mortgage market. That it is the 85% and 100% LTV tiers which now offer more deals than they did in May could be explained by the fact that 85% is now the maximum LTV offered by many providers, and at 100% LTV the products offered are almost exclusively guarantor or family assist deals, which some first-time buyers may now be considering due to the lack of standard mortgage products for those with smaller deposits.”

First-time buyers with a small deposit or homeowners looking to remortgage at a high LTV should speak to a mortgage broker who will be able to provide information and advice on the best options available for their individual circumstances.