Mortgage rates have hit record lows for some borrowers, but could prices drop even further? Mortgage lenders are engaged in a battle to tempt borrowers with big deposits, and even those with the smallest down-payments are seeing rates fall. Here, Which? explains why mortgages are becoming cheaper and speak to two experts about whether this is the start or the end of the rate war.
Mortgage price war results in record low rates Mortgage rates have been falling consistently in the last few months, offering buyers with big deposits the lowest rates on record. The price war started back in May, when TSB launched the first sub-1% two-year fixed-rate mortgage seen since 2017.
Since then, we’ve seen rates on two-year fixes fall to just 0.83%, and five-year fixes drop below 1% for the first time. These chart-topping deals are all available at up to 60% loan-to-value, so they’re only suitable for buyers with large deposits or people remortgaging with significant equity in their home.
So far, the price war has largely focused on 60% mortgages, with lenders looking to secure the custom of low-risk borrowers. This means some buyers are locked out of the best deals.
Martijn van der Heijden of the online mortgage broker Habito says:
‘People with smaller deposits, with short employment history, who are self-employed or are buying new-build homes, have all seen much less of a price war.’
There are signs, however, that deals at higher loan-to-value (LTV) levels are quietly dropping in price, with the cheapest 75% two-year fix now priced at just 0.99%. David Hollingworth of L&C mortgages believes even buyers with the smallest deposits are now benefiting from much lower rates than before. He says:
‘The 95% mortgage market has seen a rapid increase in lender and product choice, and this has helped to improve rates. Rates started out at nearer 4% earlier this year, but they are rapidly getting closer to 3%.’
The big question for people looking to take out a mortgage is whether now is the time to take the leap, or whether rates could fall even lower in the coming months. David Hollingworth says:
‘It certainly feels as though there can’t be much more to be shaved off rates at the moment, but we can’t rule out there being some lower rates to come’.
He says people remortgaging may find the cost of being moved on to their lender’s standard variable rate for a short period outweighs the benefits of waiting for a cheaper deal. Martijn van der Heijden believes the price war has been caused by a combination of record levels of savings deposits and the introduction of the stamp duty holiday, which staved off fears of house prices falling in the wake of Covid-19. He says:
‘We don’t think these mortgages are especially profitable for lenders right now, so rates are unlikely to go down much further from here. The record-low deals on some two and even five-year deals may not last for long.’
If you have questions about mortgage rates speak to a bury mortgage advisor today, speak to Search Mortgage Solutions