Mortgage rates fall as average house prices reach a new record high

The housing market remains strong despite the pandemic, as house prices continue to rise and the number of mortgage deals has reached its highest level since last spring, while rates have fallen month-on-month.

The average house price has reached a new record high, rising to £261,743 during May, according to the Halifax House Price Index. This is a monthly increase of 1.3% and an annual increase of 9.5%, which means that “the average UK home has increased in value by more than £22,000 over the past 12 months,” explained Russell Galley, managing director at Halifax.

While house prices have been rising, house buyers needing a mortgage will likely welcome the news that the choice in mortgage deals has increased to its highest level since the start of the pandemic. According to data due to be released in the Moneyfacts UK Mortgage Trends Treasury Report, the number of mortgage deals available on the 1 June 2021 was 4,243 – this is an increase from 3,927 available on the 1 May 2021. Meanwhile, year-on-year the number of mortgage deals in the market has increased by 1,433, up from 2,810 available on the 1 June 2020.

A significant number of the new deals have entered the first-time buyer charts and are available to those with just a 10% or 5% deposit – 90% loan-to-value (LTV) and 95% LTV respectively. “While improvements in availability were recorded across the majority of the LTV tiers, it was at 95% LTV that nearly a quarter of the new deals were launched,” explained Eleanor Williams, finance expert at Moneyfactscompare.co.uk. “Over the course of the past month, 33 new two-year fixed rate products were launched, seeing the average fixed rate drop by a substantial 0.14% to 3.88% – the lowest this has been since it fell to 3.28% in June 2020, when availability had shrunk to just 31 deals. Those seeking a five-year fixed rate in this tier have 27 further product options launched this month, and also saw a notable drop in the average rate, falling by 0.10% to sit at 4.07%. While these remain some 0.63% and 0.40% above where these rates were in June 2019, it seems that the trajectory is moving in the right direction.”

Meanwhile, those looking for a mortgage deal with a 40% deposit (60% LTV) will have seen competitively low rates now available in the charts, with the lowest rate on a two year fixed deal at this LTV now offering just 0.95%. Williams added: “These record-low rates are available to low-risk borrowers with high levels of equity, but as to whether this competition will extend to higher-LTV deals remains to be seen as we navigate the full economic impact of the last year. Those looking to secure a new mortgage deal may find it invaluable to seek advice, not just to establish what the best product for their circumstances would be, but also to ensure they get guidance on affordability and eligibility criteria while these remain fluid.”