How falling mortgage rates are saving borrowers thousands of pounds
New figures from the Bank of England have revealed that tumbling mortgage rates are shaving hundreds of pounds a year off homeowners' mortgage payments.
As rates are cut to record lows thanks to what the Daily Mail calls “an aggressive mortgage war”, borrowers are the big winners as the cost of home loans continues to fall. Experts also believe that there could be further cuts to come as the mortgage price war continues.
New Bank of England figures have revealed that, for the first time, the average five-year fixed mortgage rate has fallen below 3%, while the average two-year fixed rate has dropped below 2% for borrowers with a 25% deposit. On a typical £200,000 mortgage, the reduction in rates means that annual payments are now up to £1,400 less than a year ago.
The official data shows the average two-year fixed rate for someone with a 25% deposit in April was 1.95%, down from 2.54% a year earlier. On a £200,000 mortgage over 25 years this equates to an annual saving of £700. The average five-year fixed with the same deposit fell from 3.69% in April 2014 to 2.93% just a year later, chopping £967 off someone’s yearly mortgage payments.
And, it is not just fixed rates that have fallen sharply. The two-year variable rate has almost halved over the last year, from 2.73% to 1.55%. On a typical £200,000 mortgage this would reduce annual payments by almost £1,400.
Mortgage expert Brian Murphy told the Daily Mail: “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.”
Bank of England unlikely to raise interest rates
With many experts believing that the Bank of England is unlikely to raise interest rates from their current level of 0.5% for another year, mortgage rates are set to remain low for the foreseeable future. Low inflation and weak wage growth mean that a rise in the cost of borrowing is unlikely until next spring at the earliest.
Mortgage broker David Hollingsworth says: “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 borrows the chance to lock their rate in at unprecedented lows.”
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