Average two-year fixed rate breaches 3% | moneyfacts.co.uk

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Eleanor Williams

Finance Expert & Press Officer
Published: 09/05/2022

As the cost of living crisis continues to dominate headlines, data from the latest Moneyfacts UK Mortgage Trends Treasury Report shows that average mortgage rates continue to increase, with the average overall two-year fixed rate rising above 3% for the first time in over seven years.

Despite no base rate movement during April, we saw a 0.17% month-on-month increase in the two-year fixed rate average for all loan-to-values (LTVs) which has now risen for a seventh consecutive month. At 3.03% this is the highest on Moneyfacts’ records since March 2015 (3.06%) and has risen by 0.69% since December 2021.

At 3.17%, the overall five-year fixed rate increased for a seventh consecutive month, rising by 0.16% since last month and now the highest recorded since May 2016 (3.17%), having gone up by 0.53% since December 2021.

Moreover, the average two- and five-year fixed rates at 95% LTV have also risen month-on-month to 3.35% and 3.47% respectively. Not only are these average rates still lower than a year ago, but product availability in this sector has also continued to improve, rising by a further two deals this month to 369 – the most on offer since pre-pandemic in March 2020 (391).

The sector battles on

The mortgage sector has demonstrated great resilience during unprecedented times, buoyed by the level of demand for the limited supply of housing stock available and the great ‘race for space’ as many people re-evaluated their property needs. The sector could continue to be fuelled by a shift in focus as remortgage borrowers, spooked by Bank of England rate rises, hurry to secure some financial stability and rush to lock into a fixed deal to protect themselves from further rate increases. This move may particularly be true for those who, by virtue of house price growth, could take advantage of increased equity in their home to potentially secure a lower rate.

Mortgage rate re-pricing has continued at pace, with both the overall two- and five-year fixed rate averages increasing for a seventh consecutive month. At 3.03%, the two-year average has risen above 3% for the first time since March 2015 (3.06%), while the five-year equivalent of 3.17% has also risen, and sits at its highest in six years (May 2016 – 3.17%). With a margin of just 0.14% now separating these averages, the differential between the two is the smallest recorded since February 2013 (0.08%). This could indicate that providers may be adapting their pricing towards borrower preference potentially shifting towards longer term fixed rate options in order to protect themselves from further pricing volatility.

First time buyer woes

First-time buyers could understandably be feeling disheartened by the combination of rising house prices, mortgage rates surging and increases in their cost of living impacting on affordability. They may therefore take a small glimmer of hope from the fact that, at 369 deals, the provision of products offered at 95% LTV is at its highest since pre-pandemic March 2020 (391). The average two- and five-year fixed rates at both 95% and 90% LTV may have risen month-on-month, these are the only two lending tiers where the average rates remain lower now than they were at this time last year. While there may be some who are forced to delay their homeownership dreams due to wider economic pressures, recent movements in this sector seem to indicate that lenders could be keen to continue to cater to this demographic where possible.

Overall availability of products across the residential mortgage sector ticked up again month-on-month, with a further 162 options coming to market since April, bringing the total choice of deals up to 5,087. Those hoping to secure one of these new mortgages will note that product shelf-life remains low at 22 days, just one day longer than the record low of 21 days logged last month, so moving swiftly to get the best option available to them is wise.


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