The cheapest interest rates for fixed refinancing with a term of two years have fallen below 5 percent for the first time since July.
Lenders including Yorkshire Building Society, Virgin Money, the Bank of Ireland and from tomorrow Barclays are all offering rates below 5 per cent.
The news will be welcomed by homeowners across the country, 1.6 million of whom will see their existing fixed mortgage terminated next year.
Lenders including Yorkshire Building Society, Virgin Money, the Bank of Ireland and from tomorrow Barclays are all offering rates below 5% to homeowners
While most people who refinance their mortgage will still see a big jump in their monthly costs, the fact that it is now possible to get below 5 percent, rather than above 6 percent, will go some way to limiting the financial shock.
In total, there are now 27 lenders offering fixed mortgages below 5 percent, up from 13 at the start of October, according to Moneyfacts. These range from ten-year fixes to two-year fixes.
Rachel Springall, financial expert at Moneyfacts, said: ‘It is encouraging to see cheaper mortgages on the market for borrowers, especially the yield on two-year fixed mortgages priced below 5 per cent.
‘This is great news for those who do not want to commit to a permanent, long-term contract. Several major lenders have cut fixed mortgage rates and expectations are high for more cuts in the coming weeks.
“It’s a promising market for consumers looking for a new deal.”
The fixed mortgage interest rate shows a downward trend
The cheapest deals available can be found on a five-year fixed rate basis, with the best remortgage deal currently available at 4.59 percent.
However, the majority of borrowers opt for two-year deals, hoping that interest rates will have fallen by the time they are set again.
If current predictions are correct, it may be wise to choose the shorter, more expensive option.
Analysts at Morgan Stanley have already predicted that the Bank of England’s base rate will be cut as early as May next year, falling to 4.25 percent by the end of 2024.
Meanwhile, Capital Economics says interest rates will be cut in the second half of next year. She predicts that the basic rate will drop to 3 percent by the end of 2025.
Future declines: Capital Economics predicts bank rate to be cut to 3% by 2026
The cheapest two-year fixed rate remortgage deal is currently offered by Virgin Money, which charges 4.94 per cent, although this comes with an arrangement fee equal to 1 per cent of the loan amount.
Yorkshire BS also has a rate of 4.94 per cent with a fee of £1,495.
The Virgin Money deal is open to people with a minimum of 40 percent equity, while the Yorkshire BS deal only requires a minimum of 25 percent equity.
Someone with a £200,000 mortgage, repaid over 20 years at an interest rate of 4.94 per cent, would have a monthly payment of £1,313.
While this may be a jump on what they currently pay, it is much better than the market average of 6.19 per cent over two years, which would see someone in this position paying £1,455 per month.
From tomorrow, Barclays will also join the sub-5 percent club. It offers a two-year fixed term remortgage at 4.98 per cent with a £999 fee, for those with at least 40 per cent equity.
L&C mortgage expert David Hollingworth believes the Barclays deal will prove popular and could lead to further rate cuts on remortgage products.
He says: ‘I think the Barclays deal is important because it is available at a more typical standard fee of £999.
‘This will hopefully help pick up the pace of other lenders, who tend to be at the forefront of rates for homebuyers, but less aggressive for refinancing borrowers.
‘This is therefore a welcome move from Barclays to join the sub-5 per cent mortgage refinancing package.
“That will help provide better options for those facing the payment shock that today’s higher rates will inevitably bring after a current lower fixed rate.”
Homeowners with equity of 20 percent or less will be limited to remortgage deals above 5 percent.
For example, someone looking to take out a new mortgage with just 10 percent equity in their home can still get an interest rate of 5.34 percent with Yorkshire BS.
Falling interest rates: There are now 27 lenders offering a fixed mortgage below 5 percent, compared to 13 at the beginning of October
What other new deals are worth knowing about?
Barclays is launching another wave of exciting deals aimed at home movers.
These include a two-year fix of 4.8 percent for those who buy with a deposit of at least 40 percent, as well as a 4.95 percent deal for those with a deposit of at least 25 percent.
Craig Fish, director of Lodestone Mortgages & Protection, believes the current pace of interest rate declines could mean we could see a sub-4 per cent deal by Christmas.
He says: ‘The interest rate war is now well underway, and more lenders are likely to follow suit.
‘There is a real chance that this side of Christmas we will see a five-year correction of less than 4 percent, and also a two-year correction below 4.5 percent.
“Swap rates have fallen this week, and lenders will now have to keep this up until the end of the year.”
Rate cuts: From tomorrow, Barclays is offering a two-year fix of 4.8% for those who buy with a minimum 40% deposit and a 4.95% deal for those with a minimum 25% deposit
Movers looking for the cheapest deals could also be encouraged by Yorkshire Building Society’s new rates.
The changes include a five-year fixed Best Buy rate for borrowers with a 25 per cent deposit at 4.69 per cent, with a £495 fee.
Meanwhile, the three-year fixed rate product, which is particularly attractive to first-time buyers with a deposit of just 5 percent, charges 5.69 percent, which is also rated Best Buy by Moneyfacts.
What is the advice for those nearing the end of their current mortgage agreement?
Many homeowners are protected from rising interest rates by the fixed rate agreement they entered into before interest rates started rising.
As people reach the end of their current deal, their monthly payments will likely increase significantly.
According to Nicholas Mendes, mortgage technical manager at estate agent John Charcol, they should start drawing up their budget in advance to accommodate these changes.
“Calculate the potential payment increase,” Mendes says. “Once you have a new rate in mind, calculate your new potential monthly payments.
‘Next, review your financial goals and consider how the potential increase in mortgage payments could affect your savings plans and reconsider your budget.
‘Be prepared to dip into an emergency fund, or if that doesn’t work, try to save for it. This can cover unexpected costs or income disruptions that may arise as a result of higher mortgage costs.’
Plan ahead: According to Nicholas Mendes, mortgage technical manager at John Charcol, borrowers should prepare their budgets in advance to accommodate these changes.
Homeowners nearing the end of their deal should also negotiate a new deal in advance, even if they expect interest rates to drop.
“Start the remortgage process well before your fixed rate expires so you have plenty of time to explore your options and secure a better rate,” says Mendes.
‘You can take out a remortgage up to six months before the end of your fixed interest rate. Locking in a new rate early can be particularly useful as it means that if rates were to rise further, you would already have secured a lower rate.
‘If they were to fall further in the six months before the end of your fixed rate, you always have the option of switching to a new contract with the existing lender or even starting over with a different lender.’
Those looking to sell or who are close to paying off their mortgage may prefer to forego their current deal, even though it may mean falling onto the lender’s standard variable rate for a short period.
Mendes adds: ‘The standard variable rate is the background rate that the lender charges interest to those who have switched from a fixed rate or an initial term product.
‘Having an SVR from a lender is usually suitable for people who need to sell their property or are nearing the end of their mortgage, allowing them to overpay or pay off the mortgage without any fees.
‘Otherwise, apart from a product transfer with the existing lender, homeowners can switch to a fixed rate which will be significantly cheaper.’
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