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Mortgage rates fall in reprieve for UK homeowners

by Ozva Admin

Anyone who has, or hopes to get, a mortgage can breathe a sigh of relief as average rates are now falling, with more falls forecast.

Data from Moneyfacts, a company that analyzes the mortgage market, shows that average rates on two-year and five-year fixed loans have fallen since the Bank of England raised its base rate by 0.75 points to 3 percent in the week. pass.

The average two-year deal now carries an interest rate of 6.35 percent, down from 6.46 percent when the Bank announced its rate decision last week. Meanwhile, five-year deals have fallen further, with average rates now reaching 6.12 per cent compared to a rate of 6.3 per cent just a week ago.

The downward trajectory is the first good mortgage news since September’s mini-budget, although rates remain very high compared to last October. Back then, the typical two-year fix was 2.25 percent and the five-year fix was 2.55 percent.

However, it is a highly unusual situation to see mortgage rates drop just as the Bank of England base rate, which usually determines the cost of borrowing, rises. Here we explain what is happening:

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Why are fixed rate offers falling when interest rates are rising?

like the cost of credit shoots up after the September mini-budgetSo did financial markets’ predictions about where the base rate would be next year, and lenders moved quickly to raise their borrowing costs. But now, as base rate predictions drop, they feel more comfortable about their future costs. Andrew Bailey, Governor of the Bank of England, made it clear last week that the 0.75 point increase in the base rate “should not lead to higher mortgage rates”.

Another factor is that the high price increases that we saw were not only related to what was happening with the economy. The flood of mortgage applications faced by lenders as borrowers scrambled for the best deals as rates rose shortly after the mini-budget also had an impact. Some banks and building societies raised their rates to help reduce their workload.

“Lenders now have better control of managing their application volumes so they can afford to be more generous with their pricing and overall we’ve seen some downward movement in recent weeks,” he said. Rhys Schofield, managing director of Peak Money mortgage brokers. .

Jonathan Burridge, founding adviser at We Are Money, added: “Lenders were overwhelmed and didn’t want to appear competitive and get more business, so they raised their rates. This started a chain reaction, with no lender wanting to be exposed as ‘best value’ for long.”

“Add to this that we are almost at the end of the year when many lenders’ new business targets will be reset to zero, we are likely to see some further reductions in fixed rates in the coming months.”

Another more technical reason for the decline is something called interchange fees. These are used by banks and building societies to try to predict the path of the base rate. “Interchange rates are going down, and fixed rates are going down, too,” said Scott Taylor-Barr, financial advisor at Carl Summers Financial Services. “It’s a sign that the base rate doesn’t seem to need to go up as much as the markets predicted.”

Justin Moy, managing director of EHF Mortgages, added that fixed rate interest rates it had “gone up very substantially” without the base rate going up as fast, meaning there was now an element of correction. “However, this does not mean that we are going to see a massive change, and I anticipate that rates will be relatively static for the next few months, with only minor changes here and there.”

What are the best rates on the market?

Virgin has a five-year fixed rate rate of 5.09 per cent, for people with a 35 per cent deposit and a £995 fee. Their two-year contract comes with a rate of 5.35 per cent. Generation Home offers a two-year fixed rate of 5.42% for move-ins, up to 75% of the loan value and with fees of £999. The West Bromwich Building Society has a three-year fixed rate of 5.49 per cent (25 per cent deposit with a fee of £995) and the Coventry Building Society has one of the same duration at 5.53 per cent. To qualify, you need a 35 per cent deposit and a fee of £999.

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