Five-year fixed rates are falling – is it time to lock into a deal?
The five-year swap rate has dropped below the two-year rate for the first time since the UK’s financial crisis 11 years ago.
Moneyfacts noted that the last time this happened was on 7 October 2008, the day before the Bank of England made the first of six consecutive monthly cuts to the bank rate, which saw it fall from five per cent to 0.50 per cent by 5 March 2009.
The five year swap rate is currently 0.60 per cent, lower than the two-year swap rate of 0.66 per cent.
Analysis by Moneyfacts showed that the average five-year fixed rate mortgage has fallen from 2.84 per cent to 2.79 per cent in the last three weeks – an indication that significant cuts appear to be taking place since the five-year swap rate drop on 2 August.
As a result, the difference between the average two- and five-year fixed mortgage rates has reduced by 0.03 per cent to 0.32 per cent over the same period.
Highest LTVs unchanged
The largest cuts to five-year fixed mortgage rates have taken place in the maximum 80 per cent loan-to-value (LTV) sector, which has fallen by 0.08 per cent to 2.79 per cent since the beginning of the month.
This is closely followed by the 70 per cent and 85 per cent LTV sectors, which both fell by 0.06 per cent to three per cent and 2.81 per cent respectively.
Darren Cook, finance expert at Moneyfacts, said the cut to five year fixed rates would be “welcome news” to borrowers who wanted to lock into a longer period during economic uncertainty.
“Potential first-time buyers may feel a little hard done by, as the average rate at maximum 95 per cent loan-to-value has remained unchanged at 3.63 per cent since the beginning of the month.”
Jeremy Duncombe, director of intermediary distribution at Accord Mortgages, said: “Fixed rates have always been volatile compared to base rate, as they are impacted by the wider economic picture and market sentiment.
“Current uncertainty clearly demonstrates the need for advice, with the role of the broker being vital in a customer’s decision. Cheapest is not always best, and advice ensures the customer’s circumstances are fully considered before a recommendation is made.”