Mortgage rates have been on a clear downward spiral in recent years, but as we surmised last month, the tables could be starting to turn, with our latest figures revealing that variable mortgage rates have stagnated as competition disappears from this sector of the market.
The figures, taken from our soon-to-be-published UK Mortgage Trends Treasury Report, show that the average two-year variable tracker mortgage rate has stayed put at 1.98% for the third consecutive month, and is now only marginally lower than at this point last year, following a volatile 12 months for the sector.
| Average 2-year tracker rate |
| Feb-16 | Dec-16 | Feb-17 |
| 2.02% | 1.98% | 1.98% |
| Source: Moneyfacts.co.uk |
Activity in the variable rate market is highly correlated to wider economic events, which explains why averages can fluctuate so wildly, and why providers now appear to be unwilling to compete. Indeed, the last 12 months have seen the average rate rise to 2.13% in August before plummeting to its record low of 1.94% after the
base rate cut, with its current stagnation at the slightly higher level of 1.98% being indicative of market forces.
"The stagnation in the two-year variable tracker rate signals an interesting time in the mortgage market," explains Charlotte Nelson, finance expert at Moneyfacts. "Providers do not seem to be active in this sector, and this is reflected by the fact that it is not only the average two-year variable tracker that has remained unchanged, but over the past month every loan-to-value (LTV) average has experienced the same lack of movement."
There's an historic precedent for this trend, too. "Back in 2009, when the Bank of England cut the base rate to 0.50%, variable rates suddenly became the black sheep of the market, with many providers withdrawing them completely," said Charlotte. However, while the recent cut to the base rate hasn't had quite the same effect – the number of variable rate mortgages available hasn't dropped – providers appear to lack the desire to compete, which still results in a less fruitful market for borrowers.
"The lack of appetite can be largely explained by lenders' concerns over the uncertainty of the economic outlook," explains Charlotte. "Instead of focusing on both fixed and variable rate products for a balanced range, they have chosen to push their fixed rate range to protect their mortgage book."
There's a clear preference on the part of borrowers for fixed rates, too, despite record low base rate. Indeed, recent figures from the Council of Mortgage Lenders (CML) show that the balance of outstanding mortgages has swayed in favour of fixed rate mortgages and away from variable ones.
"Clearly borrowers are now recognising that, with all the competition in the market, fixed mortgages can offer a better deal and a promise of security in uncertain times," Charlotte concluded, and such deals could certainly be a prudent way to go.
Not only are fixed mortgage rates at record lows, but these deals offer repayment security for the duration of the term, offering a great way to plan your budget and ensure you won't get any unexpected surprises, no matter what happens to rates or the market at large for the foreseeable future. Check out the top fixed rate mortgages to see what's out there, and make the most of the competition still apparent in this sector of the market.
