The Bank of England’s decision yesterday to hold base rate once again will have many mortgaged homeowners wondering whether the worst is over.

In truth, mortgage rates have already fallen. When considering the cheapest remortgage deals across the 10 biggest lenders, rates have dropped significantly over the past couple of months.

On average, two-year fixes have fallen from a high of 6.18 per cent in August 2023 to 5.4 per cent today, according to analysis by L&C Mortgages.

On a £200,000 being repaid over 25 years, that’s the difference between paying £1,311 a month in August and £1,216 a month in November – almost £100 a month less.

Fix up, Look Sharp: The cheapest five-year deals are below 5 per cent, while the cheapest two-year fixes are hovering just above 5 per cent.

Fix up, Look Sharp: The cheapest five-year deals are below 5 per cent, while the cheapest two-year fixes are hovering just above 5 per cent.

Fix up, Look Sharp: The cheapest five-year deals are below 5 per cent, while the cheapest two-year fixes are hovering just above 5 per cent.

Meanwhile, those remortgaging onto the cheapest five year fixes have seen average rates fall from 5.69 per cent to 5.02 per cent during that time.

It’s worth pointing out, the lowest five-year fixed rate remortgage is currently 4.84 per cent, while the lowest two-year fix is 5.09 per cent. 

Homeowners will typically need to have at least 40 per cent equity built up within their home’s (60 per cent loan-to-value) in order to apply for the cheapest deals. 

However, thanks to strong house price growth in previous years, many remortgaging are likely to find themselves in this ‘equity rich’ category.

While many fixed rate borrowers are protected from current interest rates until their existing deals ends – typically after two, three or five years, there are others who could see immediate savings by fixing now.

None less so than the 680,000 mortgage borrowers that have fallen on to their lenders standard variable rate (SVR), according to UK Finance data.

This is the higher variable rate that borrowers fall onto at the end of their deal when their initial deal ends. These can often be between 8 per cent and 9.5 per cent, depending on the lender.

For example, Halifax is currently charging its SVR borrowers 8.74 per cent and Virgin Money is charging 9.49 per cent. 

Average of ten biggest lenders lowest remortgage rates
Date Two-year fix Five-year fix 
January 2023 5.09% 4.8% 
June 2023  4.72%  4.31% 
August 2023  6.18%  5.69% 
November 2023  5.4%  5.02% 
Source: L&C Mortgages     

Some people currently on SVRs are technically mortgage prisoners, which means they’re trapped with inactive lenders that don’t provide new mortgage products, whilst being unable to pass the affordability checks of other lenders.

However, these are only a minority – a group fewer than 50,000, according to the FCA.

The vast majority of people on SVRs should in theory be able to either remortgage to a new lender, or failing that, switch to a new deal with their existing lender. 

The potential savings from doing so could add up to thousands of pounds a year.

The average SVR is 8.19 per cent, according to Moneyfacts, while the average five-year fix across all products is 5.87 per cent.

On a £200,000 outstanding mortgage being repaid over 25 years that could be the difference between paying £1,569 per month and £1,273 a month, which equates to an annual saving of £3,552.

David Hollingworth, associate director at L&C Mortgage says: ‘If you’re on an SVR, then the message has to be to act and act fast. 

‘Standard Variable Rates have continued to edge up as they react to base rate movement and many are now carrying rates that are well above 8 per cent. 

‘With fixed rates falling, the gap between what an SVR borrower is paying and could potentially get by fixing is only getting wider.

‘Taking advice will be the best port of call. The market may have tightened in terms of affordability as rates have risen but lenders are keen to attract new customers and assuming that there aren’t any options could be costly. 

‘An adviser will also be able to look at options from the existing lender to give a full overview of what the best option could be.’

> How to remortgage your home: A guide to finding the best deal

What about those with fixed rate mortgages ending? 

Tens of thousands of fixed rate mortgage customers will be coming to the end of their deals with every passing week. 

Next year, around 1.6 million fixed rate mortgage deals are due to end, according to UK Finance. Many of these will be on very low rates of 2 per cent or less.

Although they will see their monthly repayments jump considerably, falling mortgage rates at least allows for some damage limitation.

Mortgage brokers are predicting rates to fall further from here. However, they are expecting it to be very gradual.

Mark Harris, chief executive of mortgage broker, SPF Private Clients, says: ‘Borrowers will be wondering what happens next.

‘Those hoping rates will move swiftly downwards could well be disappointed; we expect a period of around six months during which rates will plateau, followed by a gradual reduction in base rate to ‘normalised’ levels of around 3 per cent.

Chris Sykes, technical director at mortgage broker, Private Finance, adds: ‘The base rate being held may inspire some greater lender confidence so this could lead to some rate decreases, but it is likely to keep things the same as most lenders expected the base rate to stay flat.

‘From there, we will see very gradual decreases to fixed rates generally as we get closer to the time when base rate will start to reduce, but don’t expect to see large changes at any point soon.’

The advice therefore to those coming to the end of their fixed rate mortgages is to speak to a broker and lock in a deal six months ahead of time.

If rates then fall in the interim, you can ignore the first offer and secure an alternative better deal.

Mortgage brokers are predicting rates to fall further from here, but they are expecting it to be very gradual

Mortgage brokers are predicting rates to fall further from here, but they are expecting it to be very gradual

Mortgage brokers are predicting rates to fall further from here, but they are expecting it to be very gradual

David Hollingworth adds: ‘With another hold decision borrowers will now be hopeful that they have seen the last of rising rates.

‘Of course, we will need to avoid any more nasty surprises and see inflation continue to fall but the mortgage market has already shown much greater stability.

‘Mortgage rates have been improving slowly and yesterday’s decision should only help to ensure that trend continues for now.

‘Nonetheless borrowers approaching the end of their current deal should shop around to ensure they have a rate in place.

‘They will be able to review if the market continues to improve but having a rate in place should help avoid an expensive period on a standard variable rate that can be well over 8 or even 9 per cent.’

This post first appeared on Dailymail.co.uk

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