Mortgage rates spiral to record lows

Lenders have responded to low inflation by slashing mortgage rates to rock-bottom, according to new Bank of England data.
Mortgage rates spiral to record lows


Average two-year fixed rates have dropped by almost a quarter of a percentage point during the month of October.


A two-year fix at 75% loan to value has dropped to 2.24%, from 2.46% in September, while a two-year fix at 90% has dropped by 0.24 percentage points to just 3.99%.


The figures are among the lowest in the twenty years that the Bank has collected data on mortgages.


The late summer came with numerous warnings that the best conditions for homeowners had been and gone, as lenders poised themselves for a succession of increases to the Bank of England base rate.


But a bigger-than-expected drop in inflation, together with a weaker outlook for the global economy, has delayed the prospect of a rise in the base rate and has brought new emphasis upon competition for borrowers.


Lenders including Yorkshire and Clydesdale Bank, the Post Office, HSBC, Woolwich (for Barclays) and the West Bromwich Building Society all slashed rates last month across a variety of terms, as competition for borrowers.


And there is no immediate sign of this trend abating, with Santander, Leeds Building Society, Principality, and the Yorkshire Building Society group among the lenders to have joined the battle in November.


Modern Home


Watch Out For High Fees

The difficulty for homeowners is that low mortgage fees are often accompanied by a high arrangement fee.


HSBC's two-year fix at 1.49% for a maximum of 65% LTV costs a hefty £1,999, which will more than likely offset any savings made as a result of lower monthly payments. 


It is also a high price to pay for just a two-year fix, with borrowers aware that they will have to pay up again after two years if they want a new offer.


The trick to remember with fees is that it's only worth paying a high sum for a lower rate on a high value mortgage. This is because the monthly payments will fall further and faster if you achieve a lower rate on a £400,000 loan a £150,000 loan.


Otherwise, it's often worth sacrificing a little on the rate to find a lower-fee product, which proves better value overall.


See our guide on mortgage arrangement fees for a demonstration of how this works in practice.


Keith McDonald

Which4U Editor

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