Average five-year mortgage is below 6% – BBC News

  • Written by Kevin Peachey
  • cost of living correspondent

image source, Getty Images

Average interest rates on five-year fixed mortgages have fallen below 6% for the first time since early July, new figures show.

On Thursday, the typical interest rate fell to 5.99%, according to financial information service MoneyFacts.

The average interest rate for a two-year contract is 6.5%.

Around three quarters of mortgage customers have fixed rate contracts. Around 800,000 of these deals will close in the second half of 2023, with around 1.6 million due next year, according to banking industry body UK Finance.

Last Thursday, the Bank of England’s Monetary Policy Committee decided to keep the benchmark interest rate unchanged at 5.25%, giving these borrowers hope that rates will turn around. The move came as a surprise to some analysts who had expected further gains.

Since then, some major financial institutions such as Nationwide Building Society, HSBC and NatWest have reduced the cost of many transactions, leading to a gradual decline in average interest rates.

Despite falling below 6%, the five-year average interest rate is still only back to where it was less than three months ago. As of July 3, the five-year interest rate was 5.97%, but it has been rising.

Borrowers still face the possibility of having to pay hundreds of pounds more each month than on their expiring contracts.

This has raised concerns among debt charities and raised hopes that house prices could fall further.

Brokers say it is now very likely that some mortgage holders will be able to get interest rates below 5%.

But they say interest rates are unlikely to plummet to the ultra-low levels that benefited homeowners for about a decade through late 2021.

This comes as the economic picture is very different and Bank of England Governor Andrew Bailey has downplayed the possibility that the central bank’s broader interest rates will be cut soon.

“We’re not having any discussion about cutting interest rates because it’s very premature. Our job is to get inflation down,” he said last week.

The flip side of higher borrowing costs is better returns for savers.

According to Moneyfacts, the average interest rate for easy access accounts is currently 3.14%.

For those willing and able to part with their savings, the typical rate of return on a one-year term savings contract is currently 5.44%, the report said.

Savings experts say the best interest rates on offer now are higher than seen in the past 15 years, and if your money has been sitting idle for a while, you should look for a better rate and take advantage of it. Stated.

In the broader housing market, relatively high mortgage rates – which are also affecting many landlords – have been a factor in the sharp rise in rents over the past year.

According to various surveys, housing prices are falling.

According to real estate portal Zoopla, some sellers are now feeling forced to lower their asking prices to ensure a sale.

The average discount on the asking price for the newly agreed sales was now 4.2%, or £12,125. In urban London and the south-east of England, the reduction rate was typically 4.8%, while in the rest of the UK it was 2.8%.

Richard Donnell, executive director of Zoopla, said: “The housing market continues to adjust to an environment of rising mortgage rates. Buyers remain cautious and many are looking forward to falling house prices and further declines in mortgage rates. We are looking forward to improvements in cost performance and affordability.” Adjust your rates before returning to the market. ”

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How to save money on your mortgage

  • Overpay now if you can: If you can still afford a low fixed rate deal, your mortgage may be even better. Placing money in a savings account also earns you interest that can help you pay down part of your mortgage before taking on a new contract.
  • Switch to interests only: With an interest-only mortgage, you only pay interest on the amount you borrow; you don’t have to repay the amount you borrow. But moving to an interest-only mortgage can keep your monthly payments affordable.
  • Down size: This is probably not a realistic option for growing families or owners of small apartments. But for older mortgage customers whose children have left the nest, selling and buying a smaller property may be able to reduce the size of their mortgage.

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