Fixed mortgage rates drop ahead of Base Rate change


Updated on 13 October 2014 | 2 Comments

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.

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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.

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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%

Apply here

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

Compare mortgage rates

More on mortgages and property:

The best remortgage deals

The best fixed rate mortgages

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How to cope with interest rate rises on your mortgage

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