Mortgage rates have eased in recent weeks as lenders rush to reprice deals following positive data about the UK economy, an uptick in house sales and growing expectations that interest rates have peaked.
The average cost of a two-year fixed mortgage fell on Thursday to 5.9 per cent, according to data provider Moneyfacts. That is down from a 15-year high of 6.85 per cent in August 2023 but well above 2.4 per cent in early 2022.
Between 1.5mn and 2mn households are set to reach the end of cheap deals in the next 12 months and home affordability is rising up the political agenda, putting pressure on Prime Minister Rishi Sunak to defuse a potential election-year time bomb.
Why are mortgage rates falling?
A bigger than expected drop in consumer price inflation to 3.9 per cent in November raised hopes that the Bank of England would begin cutting its benchmark interest rate from 5.25 per cent in the first half of 2024.
The improved outlook, along with pent-up demand for homes after house prices fell at the fastest pace in more than a decade, is driving mortgage providers to make products more competitive in anticipation of rising sales.
NatWest on Thursday became the latest big high-street lender to cut rates across its residential and buy-to-let range, following reductions by HSBC on Wednesday. Rivals Nationwide, Halifax, Virgin and Barclays have announced similar moves since the end of November.
The BoE’s decision to leave the cost of borrowing at a 15-year high in December had also been “pivotal” in uplifting property market sentiment, said Charles Breen, founder of brokerage Montgomery Financial.
The better market conditions were reflected in figures published by the central bank on Thursday, which showed that mortgage approvals rose more than expected and to a five-month high in November.