Low-deposit mortgage rates plummet but still “room for improvement”

In addition to lower rates, borrowers now have more deals at 90% and 95% loan-to-value (LTV) to choose from.

Borrowers with a small deposit or who own a small amount of equity in their home will be encouraged to see average rates on mortgages at 90% and 95% LTV fall between October and November.

Indeed, the average two-year fixed rates on these low-deposit deals have plummeted to their lowest points since before the “mini-Budget” in September 2022, falling to 5.24% (90% LTV) and 5.41% (95% LTV) at the start of November. This is according to data from the latest Moneyfacts UK Mortgage Trends Treasury Report.

Average five-year fixed rates on 90% LTV and 95% LTV deals also dropped in the month to November to 5.16% and 5.41% respectively.

Moreover, in addition to lower rates, there were 465 deals at 95% LTV available at the start of November, the highest number available since March 2008.

“The Government has been very vocal that it expects lenders to do more to boost UK growth, so the rise in choice and drop in cost is a healthy step in the right direction,” Rachel Springall, Finance Expert at Moneyfacts, commented.

“However, deals at 95% loan-to-value only represent 7% of the residential mortgage market, so there is more room for improvement,” she noted.

Relief for some remortgage borrowers

In the wider mortgage market, average rates resumed their downwards trend after seeing a slight uptick between September and October.

The average two-year fixed rate fell by 0.04 percentage points to reach 4.94% in the month to November, while the average five-year fixed rate saw a slightly smaller drop of 0.01 percentage points to 5.01% over the same period.

And many lenders have continued to make cuts to their fixed mortgage rates in the first week of November, including major brands such as Nationwide BS, which caused the Moneyfacts Average Mortgage Rate to fall below 5%.

“It may be a relief for borrowers to see fixed mortgage rates moving downwards once more,” Springall commented, adding that it may be particularly “positive news to those refinancing”.

The average two-year fixed rate in November 2023 was 6.29% compared to 4.94% now, which equates to a difference of approximately £203 per month in repayments (on a £250,000 mortgage with a 25-year term). As a result, anyone coming off a two-year fixed mortgage may find they are able to secure a deal at a lower rate and with cheaper monthly repayments than before.

On the other hand, anyone who took out a five-year fixed mortgage in 2020 when rates were low is likely to see their monthly payments increase, as rates are significantly higher than they were five years ago.

Are there changes on the horizon for the housing market?

While the drop in rates is encouraging for those planning to take out a mortgage, the upcoming Budget on 26 November may be causing some potential borrowers to “wait and see” how any announcements could affect them.

There have been several rumours of policy changes which could affect borrowers, including the abolition of Stamp Duty Land Tax (SDLT) in its current form and the introduction of a new form of property tax instead.

Springall notes that this “could work in favour of first-time buyers, saving them thousands of pounds upfront”.

However, she points out that it could be a “double-edged sword” as a property tax that puts more of a burden on sellers could lead to some homeowners deciding not to move, which could subsequently impact the supply of properties on the market.

“It is essential borrowers seek advice before they make any quick decisions and not feel rushed because of the Budget rumour mill,” Springall urged.