Mortgages in the UK this May were the cheapest on record
New data from the Bank of England has revealed that many of the mortgages available in the UK in May were cheaper than at any time on record. While the very best deals are still only for borrowers with significant equity in their homes the mortgage price war is clearly driving down the cost of borrowing for all consumers.
Average two-year fixed rate at 75% lending now just 1.9%
The Bank of England's latest quarterly report shows that short-term fixed rates advertised in the market fell to their lowest levels since records began in 1995 for consumers borrowing below 75% of the value of their homes.
The average price quoted in the market for a two-year fixed rate mortgage at 75% loan-to-value fell to 1.9% in May while two-year variable mortgage rates have fallen to a low of 1.56%.
The Financial Times reports that the low rates “reflect the expectation that the BoE will keep interest rates close to their historic low of 0.5% well into 2016 and the improving health in the banking industry, which is stirring competition among lenders”.
The data also shows that the average rate on a new mortgage is lower than the rate being paid by an existing borrower. Existing borrowers with a two-year fixed rate mortgage paid an interest rate of 3% on average in April, around 50% more than the cost of new deals.
While the best deals are reserved for consumers with significant equity, those with lower deposits are also getting a good deal. If you wanted a 90% mortgage in May you'd have been quoted an average two-year fixed rate of 3.52% while if you needed a 95% mortgage you'd have been charged 4.57% for the same product.
The Bank of England data also revealed that the trend for fixed-rate products was continuing. More than three-quarters of new advances were at fixed interest rates in May, even though more than half of existing lending was still using variable interest rates.
Little sign that banks are increasing 'risky' lending
Despite the falls in the cost of mortgages the Bank of England reported that there has been little sign that lenders are returning to their old, risky ways.
The proportion of new home loans with deposits less than 10% of the property price dropped 0.4 percentage points to 3.3% and the proportion of lending with high income multiples also fell. The proportion of gross advances to households borrowing more than three times their joint income decreased 1.5 percentage points since the fourth quarter of last year to 24.7%.
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