Two and five year mortgage rates hit historic lows

Although the number of mortgage deals has almost halved since March, the average mortgage rates on two and five year fixed deals have hit historic lows.

Data due to be released in the Moneyfacts UK Mortgage Trends Treasury Report shows that the number of mortgage products available has fallen from 5,222 at the beginning of March to just 2,566 at the start of May.

While the fall in mortgage deals means that consumers have less choice, there was good news for mortgage borrowers as the average rate on two and five year fixed deals have fallen to lows not seen since Moneyfacts’ electronic records began in July 2007. The current average two year fixed mortgage rate stands at just 2.09% while the average rate for a five year fixed mortgage is 2.35%.

Residential mortgage market analysis 

Source: Moneyfacts Treasury Reports. Data correct as at 1st day of the month. 

Since March, one of the biggest falls in product choice can be found on deals at 90% and 95% loan-to-value (LTV), which are often the deals aimed at first-time buyers. As Eleanor Williams, financial expert at Moneyfactscompare.co.uk, said: “What is also evident from our data is that product choice for borrowers requiring higher LTV deals has plummeted for both two and five year fixed rates. Looking at products often favoured by first-time buyers; at 90% LTV, the number of products available has dropped by 270 and 243 for two and five year fixed rate options respectively. At 95% LTV, the product count has dropped by 126 and 131 respectively, leaving only 22 two and five year fixed rate deals available in total to new borrowers.

“Considering the same two sectors of the market in relation to average interest rates, those who have a 10% deposit or equity will be pleased to see that average rates for two and five year fixed deals have reduced by a notable 0.17% and 0.26% respectively. However, for those looking for a 95% LTV product, average rates bucked the trend and have in fact increased by 0.10% for two year fixed rates and 0.04% for five year deals. The fact that average rates in the highest LTV bracket have increased is probably due to the small number of products remaining in the market leaving a significantly reduced sample size, and also the fact that these products are priced according to the higher risk to lenders when borrowing with only a 5% deposit or equity.

“First-time buyers are therefore likely to feel the effect of the current circumstances even more keenly than most. These borrowers are more likely to be looking for a low-deposit mortgage product, which as a sector of the market has contracted significantly. Purchasing when requiring a higher LTV product is also more likely to require a physical valuation, but this will depend on the lender, as many are starting to move towards automated valuation models where possible.”