Cost of five-year fixed rate mortgage drops to less than 3.5%
Date online: 26/05/2015
The average cost of a five-year fixed rate mortgage has fallen below the typical price paid for a two-year loan last year, figures showed today.
Intense competition in the mortgage market has driven down the price of a five-year fixed rate deal to an average of just 3.45 per cent.
"Longer-term fixed rates provide borrowers with extra security"
At this level, the cost of a five-year loan is now significantly below the average interest rate of 3.37 per cent that was charged on a two-year fixed rate mortgage in May 2014.
Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “The cost of the average five-year fixed rate mortgage has fallen significantly over the past year with many providers launching the lowest ever rates.
“Longer-term fixed rates provide borrowers with extra security, and to be able to secure a five-year fixed deal at two-year prices is unheard of.”
The figures came as minutes from the Bank of England’s Monetary Policy Committee meeting in May showed members had voted unanimously to keep interest rates on hold at their current record low of 0.5 per cent.
Economists are now predicting the first increase to the Bank Rate will not come until the first half of 2016.
The MPC also repeated its previous guidance that when rates did start to rise, they would do so more gradually than in previous cycles, while the Bank Rate was likely to remain below average historical levels for some time to come.
Vicky Redwood, chief UK economist at Capital Economics, said: “The key message is that the next move in interest rates will be up, but not for some time.”
She added that market expectations were for rates to start rising in the middle of next year.”
Confirmation that interest rates are likely to remain low for longer should help to boost activity levels in the housing market, as lower borrowing costs help property remain affordable despite rising prices.
In its Agents’ Summary of Business Conditions report, also released today, the Bank of England confirmed activity levels in the property market had remained below the levels seen last year.
It added that there had also been reports of a slowdown in the run up to the General Election, particularly among potential sellers, who were holding off putting their home on the market due to expectations conditions would be more buoyant in the second half of the year.
Their decision to wait had exacerbated existing supply shortages.
On a brighter note, it said the rental market had continued to expand, supported by a growth in buy-to-let activity.
But it added that so far, there had been no evidence to suggest the recent liberalisation to pension laws had led to increased investment in property.
Property commentators had previously expressed concerns that people would reinvest their pension pots in property, leading to a flood of homes being made available to rent, and pricing first-time buyers out of the market.