Fixed mortgage deals are falling as lenders seek to lock their customers into longer deals ahead of any base-rate rise.
Fixed rates are traditionally cheaper for borrowers than standard variable rates (SVRs), but since the Bank of England slashed base rate to a record low of 0.5% in 2009, an increasing number of borrowers have found that SVRs are more competitive.
The problem for mortgage providers is that people on SVRs will be able to jump ship to competitors when rates start to rise, so many lenders are now trying to tie-in their customers with more competitive fixed rates.
Financial data service Moneyfacts.co.uk said fixed rates had fallen “dramatically” recently. It found that the average two-year fix had fallen by 0.25 percentage points over the past two months – down to 3.27% from 3.52% in August.
Moneyfacts also found that the number of fixed options has risen. There are nearly 300 more fixed rates on offer compared with September, with only 10 SVR products launched during the same period.
“The remortgage market will witness a considerable boost in activity when base rate changes,” said Sylvia Waycot, of Moneyfacts.
“Many borrowers will look for a fixed rate to shelter from further increases, and many will look at starting a new relationship with another lender. This is what is driving lenders to start planning now to protect their lending books and their market share by enticing their SVR borrowers to stay put.
“Rates are being cut considerably and, in many cases, lenders have made more changes in recent months than they have done in the last few years.”
Meanwhile, Moneysupermarket.com said borrowers currently on SVRs should consider moving to fixed-rate mortgages.
“We know that a base rate rise is on the horizon, and while this may not be until next year, homeowners need to urgently consider their mortgage options while interest rates remain low,” said Moneysupermarket’s Dan Plant.
“If you are already on your lender’s SVR, or within six months of your current deal ending, don’t dawdle before starting your research. The minute base rate rises – and possibly even before – lenders will increase rates, too, resulting in an increase in mortgage payments.
“If you want stability for your outgoings, fixing is the only way to protect against future rate rises.”