Tumbling mortgage rates are saving homeowners hundreds of pounds a year, according to new figures from the Bank of England.
Borrowing winners
The ongoing ‘mortgage war,’ which has seen rates cut to record low levels, are leading borrowers to be better off in the pocket, with the costs of homes loans continuing to drop. Experts are predicting further cuts as the contest between rival lenders goes on.
The Bank of England figures show that, for the first time in history, the average five-year fixed mortgage rate is now below 3%. What’s more, the average two-year fixed rate has gone below 2% for borrowers with at least a 25% deposit. Taking an average £200,000 mortgage, the large reduction in rates now means that yearly payments can now climb up to £1,400 less than one year ago.[1]
Official data indicates that the average two-year fixed rate for a consumer with 25% deposit during April was 1.95%, down from 2.54 in the same period last year. For a £200,000 mortgage over 25 years, this leads to an annual saving of £700. Taking five-year fixed rates with the same deposit into account, rates fell from 3.69% in April 2014 to 2.93% this year, saving £967 off yearly mortgage payments.[2]
However, it is not just the fixed rate mortgage rates that have fallen considerably. Two-year variable rates have nearly halved in the last year, falling from 2.73% to 1.55%. On a typical £200,000 mortgage, this would reduce yearly rates by nearly £1,400.[3]
Lack of foresight
Speaking to the Daily Mail, mortgage expert Brian Murphy said that, ‘two years ago, brokers could not have predicted rates as low as these-and it is feasible that rates will continue to fall in the short to medium term. Lenders are keen to do business and there is a lot of competition out there. Banks and building societies are willing to sacrifice a bit of profit to offer the best rates and wrestle business off one another.’[4]
Rates are likely to stay low for the foreseeable future. In addition, slow wage growth and low inflation indicate that a rise in lending costs is unlikely until at least next Spring.
Mortgage broker David Hollingsworth commented that, ‘these record low mortgage rates underline just how good the mortgage options for borrowers have become, with rates plummeting even in the last 12 months. Fixed rates in particular have hit rock bottom offering borrowers the chance to lock their rate in at unprecedented lows.’[5]
[1] http://www.whathouse.com/news/article/555b6a804031b9515e8df278/How+falling+mortgage+rates+are+saving+borrowers+thousands+of+pounds