Relief for homeowners as mortgage rates finally dip

Squeezed homeowners finally had reason to cheer as average mortgage rates fell for the first time in months.

Analysis by financial information company Moneyfacts showed the cost of borrowing on two and five-year fixed-rate deals dropped.

The average rate for a 24-month fixed deal now stands at 6.79 per cent – a slump from 6.81 per cent. Meanwhile, the typical five-year rate dipped to 6.31 per cent – a decrease from 6.33 per cent.

The majority of British mortgage payers are on fixed-rate deals but fear the cost of borrowing when deals have to be renegotiated.

The Bank of England raised its base rate to 5 per cent in June from 4.5 per cent, the highest level since 2008. The 0.5 per cent increase is the thirteenth consecutive rise and a larger jump many economists were expecting.

More than 400,000 people were expected to move off existing fixed deals between July and September, meaning they are likely to sign up to higher monthly repayments.

Fixed mortgage rates had been consistently rising since May, when the rate of inflation fell by less than expected.

But there is now genuine hope the worst is behind us. Paresh Raja, Chief Executive of Market Financial Solutions, said: “According to Moneyfacts, the average rates on two-year and five-year fixed mortgages have fallen; the first time in months this has happened.

“The change in rates is minor, but the fact that percentages are all moving in the right direction where borrowers are concerned is hugely important. It will instil confidence and positivity back into the market – buyer demand was already proving resilient, and the curbing – or even reversal – of rate increases will only bolster it further.”

The news will also be welcomed by Prime Minister Rishi Sunak as evidence his “hold firm” strategy to drive inflation down is working. The fall is expected to lead to lower interest rate forecasts.

Earlier this week better-than-expected inflation data showed a fall in the rate of rising prices, from 8.7 per cent in May to 7.9 per cent in June — in the first piece of positive economic news for months. The Office for National Statistics said there was also a drop in the rate of core inflation, which strips out food and energy prices, from 7.1 per cent to 6.9 per cent.

It has bolstered confidence that the Bank of England will not need to significantly increase its base rate.

Overall, mortgage bills for anyone who has recently agreed a new fixed rate are still up markedly from the years of ultra-low interest rates.

In October 2021, the average rate on a five-year deal was just 2.55%.

More than 2.4 million fixed-rate deals were set to expire from summer to the end of 2024, according to banking industry trade body UK Finance.

It comes as latest research showed cooling market conditions and higher cost of borrowing resulted in the number of homes returning to the market following a scuppered sale have reduced by 60% compared to the start of the year.

The average rent being asked outside London has hit a new record of £1,231 per month, according to a property website.

Average asking rents for new tenants in London also reached a new record of £2,567 per month, Rightmove said.

The asking rent figures, covering Britain, are for the second quarter of this year. Rightmove’s rental data goes back to 2011.

It added that the average property available to rent is finding a tenant in 17 days, the quickest time period it has recorded since November 2022.

The average asking rent for a typical home outside London is a third (33%) higher than during the same period in 2019, increasing by £308 from £923 per month.

London rents are 28% (£559 per month) higher than they were at the same time in 2019.

In signs that some landlords are selling up, 16% of properties currently for sale were previously available on the rental market, a figure which is up from 13% in January 2019, Rightmove said.

Rightmove’s director of property science Tim Bannister said: “Average asking rents for new tenants have risen at a rapid pace since the pandemic, reflecting the significant increase in demand, which is driven by a combination of factors including changed housing needs, such as some space to work from home.”

Allison Thompson, national lettings managing director of Leaders Romans Group, said: “Some highly leveraged landlords are considering selling due to interest rate rises but we find most are mortgage-free, and in most cases our advice is to avoid a knee-jerk reaction.”

Lynne Lancaster, head of estate agency at Penrith Farmers and Kidd’s, said: “Demand continues to well outstrip supply and we are actually seeing more tenants stay put for longer rather than move after the agreed term.”