Two-year mortgage interest rate reaches almost a three-year low, falling below 5% for the first time since the mini-budget.
The average two-year mortgage rate has seen a significant decrease, dropping to 4.99% as of August 2023. This marks the first time the rate has fallen below 5% since the mini-budget announced by former Prime Minister Liz Truss in September 2022.
Before the mini-budget, the average two-year mortgage rate hovered around 4.87%. However, following the unfunded spending and tax cuts included in the budget, mortgage rates surged, reaching as high as 6.65% by October 2022. This surge reflected increased market volatility and a steep rise in the cost of government borrowing.
The decrease in the average two-year mortgage rate can be attributed to several base interest rate cuts by the Bank of England. The current base rate stands at 4%, down from its peak of 6.25% in November 2022.
Traders currently anticipate the base interest rate to be brought down to 3.75% by December. However, the expectation of elevated price rises is preventing mortgage rates from falling further.
Despite the rate still being above pre-fiscal event rock-bottom rates, Moneyfacts, the group behind the figures, states that this milestone shows lenders are competing more aggressively for business. Mortgage providers, however, have been reluctant to offer cheaper products.
The Bank of England has raised interest rates and kept them comparatively high due to anticipated faster inflation caused by poor harvests and increased employer costs. Despite this, the average two-year mortgage rate has shown signs of a more competitive lending environment.
This news could be good for homebuyers and those looking to remortgage, as lower mortgage rates mean lower monthly payments. However, it is essential to consider the overall financial situation and the potential impact of future interest rate changes when making decisions about mortgage products.
[1] Moneyfacts, "Average two-year fixed mortgage rate falls below 5% for the first time since September 2022", August 2023. [2] Bank of England, "Monetary Policy Report", August 2023. [3] Financial Times, "Bank of England cuts interest rate to 4%", August 2023. [4] The Guardian, "Mini-Budget sends mortgage rates soaring", October 2022.
- The decrease in the average two-year mortgage rate could provide a beneficial opportunity for those investing in personal-finance, especially homebuyers and individuals looking to remortgage, as the lower rates result in reduced monthly payments.
- In the realm of business and finance, the competitive lending environment, indicated by the average two-year mortgage rate falling below 5%, might encourage personal-finance investors to consider their options more carefully, taking into account the potential impact of future interest rate changes.
