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Average fixed mortgage rates continued to fall this month, our latest figures show, however much of this could be a technical adjustment rather than an indication of ongoing rate cuts – which means it may be worth switching to a new fixed rate deal sooner rather than later.
The figures, taken from our latest UK Mortgage Trends report, show that the average two-year fixed mortgage rate fell by 0.03% this month, which means it now stands at a new record low of 2.31%. But everything may not be as it seems, particularly if you look on a loan-to-value (LTV) basis.
Indeed, rates at lower LTVs have begun to edge up – the average two-year fixed rates at 65% and 70% LTV both rose by 0.02% to stand at 1.69% and 2.17% respectively, while the average rate at 85% LTV rose by 0.01% to 2.31%. Conversely, rates at higher LTVs continue to fall, but again, this is hiding greater activity behind the scenes.
Both the 90% and 95% LTV tiers – prime first-time buyer levels – saw their average rates fall by 0.03% to stand at 2.72% and 3.89% respectively, but this could be largely due to the withdrawal of Help to Buy mortgage guarantee (H2B) products at the end of December. Given that H2B products typically had higher rates, the reduction to the average merely reflects those withdrawals, and doesn't mean that providers are actively cutting rates.
Furthermore, our more recent data shows that those products were relaunched as standard 95% LTV deals at the beginning of January, which sent mortgage rates back up again. Since the market has already corrected itself, it's unlikely that the latest reduction will be maintained to any extent, but we'll be able to discuss this when the figures are collected for next month's report.
In the meantime, what does it all mean? Well, it means that not everything is at it seems, and closer analysis suggests that we could be in for a tougher year.
The mortgage market certainly enjoyed a stellar 2016, with more choice and better rates than ever before, which meant borrowers benefited immensely. However, there are signs that 2017 won't be quite as positive: not only could rates begin to edge up, but the total number of mortgages available has fallen in the last month, driven by losses in the fixed sector of the market.
There are currently 4,096 mortgages available, down from 4,210 in December, a drop of 114 month-on-month and the largest reduction we've seen since December 2015. Availability was reduced across the board, as wider economic risks (such as Brexit-related uncertainty and rising inflation) begin to hit home: providers are perhaps becoming more cautious and are streamlining their ranges in preparation, and this, together with mortgage rates potentially edging up, means it could be high time to start preparing your finances.
There's a general expectation that 2017 could be a difficult year all round, with the Bank of England cautioning that personal and credit card debt has risen to a post-credit crunch high, while the Council of Mortgage Lenders reports a more "pessimistic outlook" for the year ahead.
There's a chance that affordability could become stretched, so if you want to snap up a low-cost mortgage – and keep your repayments low for the foreseeable future – now could be a great time to go about it! Rates are still incredibly low, so start the process and compare the top deals using our mortgage Best Buys to see if you can beat the rate rises.
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