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The mortgage market has experienced an unprecedented 12 months, but it appears that the tide is definitely turning: not only is the variable sector stagnating, but average fixed mortgage rates are edging back up, suggesting that we could be reaching the end of the record low era.
The figures, taken from our latest UK Mortgage Trends Treasury Report, show that the average two-year fixed mortgage rate has risen to 2.33% this month, up from 2.31% in January, marking the first increase since June last year. This was predominantly the result of providers re-launching their 95% loan-to-value (LTV) deals as standard rather than Help to Buy offerings – the mortgage guarantee scheme came to an end on 31 December, which saw providers quickly withdraw their products, leading to a temporary reduction in availability at that level.
This has now been rectified, with the number of available 95% LTV mortgages rising by 35 on a monthly basis to 248. That's only eight products (or 3%) fewer than in December, prior to the closure of the scheme, confirming expectations that the high-LTV market wouldn't be adversely affected by its withdrawal.
However, the latest rate increase – related to the return of 95% LTV deals, which are typically higher rate products and therefore likely to have a knock-on effect on interest rates – also confirms that last month's reduction was merely a technical one, and suggests that any further rate cuts are unlikely. Only competition is preventing average rates from escalating too quickly, and while that competition looks set to be maintained, the days of average fixed rates repeatedly falling to fresh lows appear unlikely to return.
This hasn't dampened consumer interest in fixed rate deals, however. If anything, preference for this form of borrowing is on the rise, suggesting that the slightly higher rate – particularly in comparison to the average two-year tracker rate, which currently stands at 1.98% – is viewed as a small price to pay for added security.
Additional figures from the CML back up this assumption. Their latest statistics show that there's been a definite shift towards fixed lending over the last year, with fixed rate mortgages accounting for 52% of the market between July and August 2016, while variable rates accounted for 48%.
This is compared with market shares of 47% and 53% respectively the year previously, and represents a clear shift from the norm: historically, variable rates accounted for the lion's share of lending, with the last time fixed rates overtook variable being in the immediate aftermath of the financial crisis. The fact that the barrier has been breached once again suggests that the market is subject to similar pressures, and much of it comes down to risk.
Variable rate lending is often deemed as riskier than fixed, for the simple reason that there's no telling how much the rate – and therefore your mortgage repayments – could change in the future. This is why passing affordability tests can often be harder for variable rate borrowers, and in such uncertain times, fixed rates are often the most logical choice for many.
Consumers are becoming increasingly financially aware, too, and are therefore already more inclined to fix in the face of rising uncertainty in the political and economic landscape. Fixed rates may still be higher, but the premium is too little to be a deterrent, with greater security often winning the day.
However, as the latest increase shows, it's likely that mortgage rates have already hit rock bottom – so if you're thinking of taking the plunge, it's worth doing it sooner rather than later! There are still some fantastic deals to be found, but they may not be around for long, so if you're on your lender's standard variable rate (SVR) or are coming to the end of a fixed rate deal, check out the top fixed rate mortgages to fix your repayments at the lowest rate possible.
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