Fixed mortgage rates drop ahead of Base Rate change
Lenders are locked into a battle to offer the most competitive fixed rate mortgage deals.
The mortgage market has taken a surprising turn, with many lenders cutting rates dramatically despite an increase to the Bank of England Base Rate looming closer, .
Lloyds Bank, Santander, Metro Bank, Halifax, Skipton Building Society, Nationwide Building Society, HSBC and Norwich & Peterborough Building Society have all made cuts to their rates since September.
This activity has led to a significant drop in the average interest rates of fixed rate mortgages in the last month, according to the latest Moneyfacts UK Mortgage Trend report.
According to Moneyfacts, the average rate for a two-year fixed rate mortgage has fallen 0.13% from 3.52% in August to 3.39% in September.
On the surface, this trend is surprising as the Bank of England Base Rate, which has been at a record low of 0.5% for well over five years now, is expected to rise early next year and have a knock-on effect on mortgage rates. But there's more to this.
Why are rates falling?
Moneyfacts says one reason lenders are getting more competitive is to try and attract customers who want to remortgage.
By cutting rates on fixed rate products lenders are positioning themselves for when the Base Rate does change and those with existing mortgages are prompted to make a switch.
Figures from the Council of Mortgage Lenders (CML) show around 67% of current mortgage borrowers are on their lender’s Standard Variable Rate, or SVR. This is the rate a borrower will revert onto once their initial deal comes to an end. For more on how the SVR works read What’s my Standard Variable Rate?
With the Base Rate so low for so long, SVRs have become more affordable so there hasn’t been much of an incentive to switch deals.
However, SVRs can change at any time and one of the factors likely to cause a shift is the Base Rate changing. Once Base Rate increases SVRs are likely to follow, which should prompt a surge in borrowers wishing to remortgage.
Take advantage of the price war now
If you are looking for a new mortgage, the next few months could be the your last chance to secure a good fixed rate deal before Base Rate, and then mortgage rates, start to rise.
Here are some of the best deals across a range of loan-to-values on two-year and five-year fixed rate mortgage deals right now.
Best two-year fixed rate mortgages
|
Lender |
Rate |
Fees |
LTV |
More information and how to apply |
|
HSBC |
1.49% |
£1,999 |
60% |
Call 0808 115 8734 |
|
Chelsea BS |
1.55% |
£1,545 |
65% |
|
|
Nationwide BS |
2.09% |
£499/£999 |
70% |
Apply in branch |
|
Yorkshire BS |
1.84% |
£1,080 |
75% |
Apply here |
|
Barclays (Woolwich) |
2.33% |
£999 |
80% |
Apply in branch |
|
Market Harborough BS |
2.65% |
£250 |
85% |
Apply in branch |
|
Chelsea BS |
3.44% |
£1,545 |
90% |
Apply here |
Best five-year fixed rate mortgages
|
Lender |
Rate |
Fees |
LTV |
More information and how to apply |
|
Virgin Money |
2.79% |
£1,594 |
60% |
Apply in branch |
|
First Direct |
2.83% |
£2,147 |
65% |
Apply here |
|
Barclays (Woolwich) |
2.99% |
£999 |
70% |
Apply in branch |
|
Tesco Bank |
2.99% |
£1,495 |
75% |
Apply here |
|
Tesco Bank |
3.39% |
£1,495 |
80% |
Apply here |
|
Chelsea BS |
3.64% |
£1,545 |
85% |
Apply here |
|
Norwich & Peterborough BS |
4.19% |
£1,295 |
90% |
Apply in branch |
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