Mortgage cuts spike in August, though market remains cautious

Average two-year rates now sit at an almost three-year low, while typical five-year prices hit their cheapest levels for over two years.

Despite winding down last month, rate-cutting momentum once again accelerated between July and August, the latest Moneyfacts UK Mortgage Trends Treasury Report found.

As a result, typical prices for both two- and five-year deals across all loan-to-values (LTVs) stood at 5.01% as of 1 August, having fallen by 0.08 and 0.07 percentage points respectively since the start of July. This likely comes as a relief to borrowers, especially after the same average prices fell by a paltry 0.03 and 0.01 percentage points respectively the month prior.

These latest figures also mark the lowest these sectors have been since September 2022 and May 2023 respectively, helping to bring the Moneyfacts Average Mortgage Rate closer to the 5% threshold at 5.04%.

“Breaking down into fixed rate moves over the past six months shows where the bigger margins are being shaved off by lenders,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk. Over this timeframe, the average two-year rate dropped by 0.51% compared to just 0.31% being taken off the five-year rate, as the market slowly returned to a more traditional arrangement.

Market remains cautious going forward

Although these cuts will be welcomed by borrowers nearing the end of their fixed terms, Springall suggests lenders may still “consider a more low and slow approach” to lowering prices over the coming weeks, not least because of last week’s “knife-edge base rate decision”.

The Bank of England’s Monetary Policy Committee (MPC) narrowly voted five to four in favour of lowering the central interest rate to 4.00% on 7 August, although this was still a widely anticipated decision that helped drive average rates down in the lead-up to the announcement.

As of today (12 August), the average two-year rate has since inched lower to 5.00% while the equivalent five-year rate remains at 5.01%, as some lenders reactively repriced their deals, though it was likely the case that overall, reductions were already priced into the expected base rate cut.

This was further demonstrated by the fact that the average two-year variable tracker, which would typically feel any initial effects of a base rate cut, held yet again at 4.91% for the second consecutive month at the beginning of August. This rate previously fell from 5.16% in the month to June when the base rate was previously cut.

As Springall points out, lenders may now be waiting to see if “inflation gets out of control or economic uncertainties spike”, as well as how the market could react to the looming Autumn Budget.

Shelf-life increases as product count drops

Meanwhile, the churn of products as lenders slashed prices also had an impact on the number of deals on the market, and for how long they remained available to borrowers. The report revealed that the total mortgage product count fell by 66 to 6,842 in the month to August, frustrating news for borrowers considering this number rose to its second highest point in 17 years the previous month. Despite this, shelf-life managed to increase, albeit marginally, to 17 days, slightly alleviating pressure to grab a competitive deal before it’s too late.

And yet, Springall urges borrowers to remain vigilant when refinancing onto a fixed deal, particularly for those at risk of paying their lender’s costly Standard Variable Rate (SVR).

“There is now a significant difference of more than 2% to escape a revert rate, compared to just 1% back in August 2023, based on the average two-year fixed rate versus the average Standard Variable Rate (SVR),” commented Springall.

Indeed, while the average SVR dropped from 7.85% to 7.42% during this period, the average two-year rate saw a much steeper decline of 1.84 percentage points. As a result, borrowers failing to find a new fixed deal could see their monthly repayments jump up dramatically.

As a result, it could be worth seeking professional advice to explore all of your options before moving forward.

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