A dip in choice as rates continue to rise

The Bank of England has just raised interest rates for the second time in three months, and this upward trend is being reflected in fixed-rate residential mortgage deals.

The latest Moneyfacts UK Mortgage Trends Treasury Report data reveals that, in February, the overall average rates on two- and five-year fixed deals ticked up. The average two-year fix increased from 2.38% to 2.44% month-on-month, but that represents a drop from 2.53% this time last year.

The average five-year fixed mortgage deal now costs 2.71%, up from 2.66% in January and down from 2.73% in February 2021. This is the fourth month in a row that rates have increased on these mortgage products, as lenders start to pass on base rate rises.

Looking at tracker mortgage products, however, average interest rates fell in February. The average interest rate on a two-year tracker dropped from 1.75% to 1.70% between January and February, down from 2.27% in February 2021. The average rate on a term tracker deal, meanwhile, fell to 3.51%, down from 3.53% month-on-month but up from 2.74% in February 2021.

The average Standard Variable Rate (SVR) on residential mortgage products ticked up from 4.41% to 4.46% between January and February.

There were 5,356 mortgage products available across all loan-to-value brackets this month, down from 5,394 in January. With 38 fewer deals on offer, this is the first time mortgage availability has fallen since October 2020, according to Moneyfacts data. However, there are now 280 more deals on offer than in February 2020.

Meanwhile, the average shelf life of a mortgage product has increased 50% in the past month. This means that prospective customers wanting to secure a mortgage before any further rate rises had longer to choose a product. In February, mortgage shelf life rose from 28 to 42 days month-on-month, giving would-be borrowers an extra two weeks to secure their chosen deal.

“Product numbers in the residential mortgage sector have dropped for the first time since October 2020,” said Eleanor Williams, finance expert at Moneyfacts.co.uk. “Such a small month-on-month reduction in numbers, rather than a cause for concern, could potentially be a sign of the market returning to a level of stability after a tumultuous couple of years. There are in fact 280 more deals than were on offer in February 2020 before the onset of the pandemic.

“While fixed rate mortgage pricing is not intrinsically linked to changes in the Bank of England base rate, prior to the decision to double base rate to 0.5% last week, we had recorded increases of 0.06% and 0.05% to the average overall two– and five-year fixed rates between January and February. Following four months of consecutive rises, these rates are the highest they have been since August 2021. The 60% LTV tier saw the largest monthly rises. In fact, since October, the lower LTV average rates have far outpaced the overall average rate increases as providers seem to have made their most competitive pricing decisions in the top LTV brackets of late.

“February also saw the average Standard Variable Rate increase by 0.05% to 4.46%, so those sitting on their lenders’ revert rate may wish to move swiftly to secure a new fixed deal to protect themselves from potential further increases,” Williams suggested. “As the cost of living continues to spiral for consumers, those in a position to consider a new mortgage deal may wish to seek advice sooner rather than later.”