- Written by Kevin Beachy
- Personal finance correspondent, BBC News
The average interest rate on a five-year fixed mortgage fell below 6% for the first time since early July, new figures show.
On Thursday, the typical rate fell to 5.99%, according to financial information service Moneyfacts.
The average two-year deal has a rate of 6.5%.
About three-quarters of mortgage customers have fixed rate deals. Banking trade body UK Finance says there are about 800,000 of these deals expiring in the second half of 2023, and about 1.6 million expiring next year.
These borrowers were given some hope of a change in interest rates when the Bank of England’s Monetary Policy Committee decided to keep the benchmark interest rate at 5.25% last Thursday. The move was a surprise to some analysts who were expecting another rise.
There have been gradual declines in average interest rates since then, with some major lenders – such as Nationwide Building Society, HSBC and NatWest – reducing the cost of a number of deals.
Despite falling below 6%, the five-year average rate is still only returning to the level seen less than three months ago. On July 3, the five-year rate was 5.97%, but has moved higher.
Borrowers still face the prospect of having to pay hundreds of pounds extra each month compared to their expired deal.
This has raised concerns among debt charities, and expectations that house prices may fall further.
Brokers say there is not a much stronger chance that some mortgage holders will be able to achieve an interest rate of less than 5%.
But they say there is no chance that interest rates will fall to the very low levels that homeowners have benefited from in the decade or so before late 2021.
This is because the economic situation is very different and the Governor of the Bank of England, Andrew Bailey, has played down the possibility of a wider interest rate cut soon.
“I can tell you that we have not had any discussion… about lowering interest rates, because that would be too premature,” he said last week. “Our job is to lower inflation.”
The flip side of higher borrowing costs is better returns for savers.
The average interest rate on an accessible account is now 3.14%, Moneyfacts said.
She added that for those willing and able to keep their savings, the typical return on a one-year fixed savings deal is now 5.44%.
Savings experts said the best rates on offer now are higher than anything seen in 15 years, and people should shop around for a better deal if their money hasn’t been touched for some time.
In the broader housing market, relatively high mortgage rates – which also have an impact on many landlords – were a factor in the cost of rents rising sharply last year.
House prices have fallen, according to various surveys.
Some sellers now feel forced to lower their asking prices in order to secure a sale, according to property portal Zoopla.
It added that the average discount on the asking price of a newly agreed sale is now 4.2%, or £12,125. In built-up London and south-east England, reductions were typically 4.8%, compared to 2.8% in the rest of the UK.
Richard Donnell, CEO at Zoopla, said: “The housing market continues to adapt to an environment of higher mortgage rates. Buyers continue to be cautious and many are waiting for better value for money and improved affordability as a result of falling house prices or further declines in mortgages.” Prices before returning to the market.
Ways to save money on your mortgage
- Overpay now if possible: If you still have some time to get a lower fixed-rate deal, your mortgage may be more difficult for you now. Putting money into a savings account can accumulate and also earn interest to help pay off some of the mortgage before you select a new deal.
- Switch to interest only: If you have an interest-only mortgage, this means that you only pay interest on the amount borrowed, and you do not pay down the amount of debt. But moving to an interest-only mortgage can keep your monthly payments affordable.
- Downsizing: This may not be a realistic option for a growing family, or for owners of a small apartment. But for older mortgage clients whose children have flown the nest, buying and selling a smaller property can reduce the size of the mortgage.