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Are the lowest mortgage rates relegated to history?

This time last year, recorded the lowest ever average rates for two, three and five-year fixed rate mortgages. However, with two base rate rises under the Bank of England’s belt since then, it seems that the lowest mortgage rates are now part of the history books.

Charlotte Nelson, Finance Expert at, said: “October 2017 will be known not only as the month of the lowest fixed mortgage rates on record*, but also as the turning point in the market. This is because just one month later, mortgage rates were on the rise, as was the Bank of England base rate for the first time since July 2007.

“The past year has been a challenging time for providers as they have had to wrestle with two base rate rises for the first time in years, while at the same time needing to remain competitive to protect their mortgage book. This conflict of interest has meant average fixed mortgage rates haven’t followed the Bank of England’s rate rises entirely. In fact, data from shows the average two-year fixed mortgage rate has risen by just 0.28% in the last 12 months, instead of the full 0.50% base rate increase.

“Despite this, borrowers opting for a two-year fixed rate mortgage today would still be £27.93** per month or £335.16 per year worse off compared to those who were lucky enough to lock into a fixed deal a year ago.

“But it could be worse. Since the August rate rise, many would have expected rates to increase further, but instead they are actually falling, with the average two-year fixed mortgage rate standing at 2.49% today compared to 2.53% in August. Five-year fixed rates have also fallen by 0.02% over the same period.

“The reduction of average 95% loan-to-value rates (reported last week) has some element to play in the overall averages decreasing. However, providers know that many borrowers are starting to think about protecting themselves from future rate rises, and a fixed mortgage does just that. Therefore, lenders are trying to remain competitive, wanting to be seen as offering some of the lowest rates in the market. With the summer now over, providers may also be starting to look at end of year targets, and are perhaps readjusting their rates to meet them.

“However, while rates may be falling now, it is unlikely that the record low levels seen in October 2017 will return anytime soon. With multiple base rate rises predicted for the foreseeable future, it is likely rates will only get higher, so borrowers looking for a fixed deal should act fast avoid disappointment.”

* Moneyfacts average mortgage rate records began in 2007.

**Based on a £200,000 main residence mortgage over a 25-year term on a capital and interest repayment basis. Monthly repayment for the average two-year fixed rate in October 2017 is £868.30 compared with £896.23 today based on this example.

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Source: Property118

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Borrowers rush for fixed-rate mortgages as Bank of England rate hiking cycle continues

British consumers expecting another jump in the Bank of England’s interest rates are rushing to lock in fixed-rate mortgages, new data shows.

The proportion of customers searching for fixed-rate mortgages on data firm Experian’s comparison site arm rose to over 67.4 per cent in February, a jump from only 60.3 per cent in December.

The new hawkish tilt to the Bank of England has been a relatively recent development. Interest in fixed-rate mortgages had jumped in September, when only 58 per cent of potential borrowers searched for steady interest rates, after the Bank gave its first indications it would consider reversing its previous move, a post-Brexit-vote cut in August 2016.

The Bank of England’s determination to start raising the base rate at which it lends to banks has taken many economists by surprise, which resulted in a surge of interest in remortgaging from households faced with the first rate hiking cycle in over a decade.

Demand for fixing the rate, rather than plumping for a variable tariff which could rise if Bank of England lending rates do, jumped to 67.1 per cent in November after the first hike.

Separate data from UK Finance last week showed a spike in remortgaging activity as procrastinators rushed to get a better deal, with 7.4 per cent more remortgagers than the same month a year earlier.

The jump in interest in remortgaging has come against a backdrop of falling demand for mortgages from first-time buyers and home movers.

The Bank this month gave a strong signal that it expects to hike rates again in May, saying market expectations of a first hike only in November would not be sufficient to reduce inflation to target in three years’ time.

A May hike would raise bank rate, the Bank’s main interest rate to 0.75 per cent, its highest since February 2009 as the central bank fought the financial crisis. Economists then expect a second rate rise in November, before a period of stability as the UK prepares to leave the EU in March 2019.

Source: City A.M.