Property and mortgages

Two-year fixed-rate mortgages fall to a record low

The average overall cost of a two-year fixed-rate mortgage has fallen below 3% for the first time.

The number-crunchers at Moneyfacts say the average rate fell from 3.06% to 2.98% last month, with increased competition part of the reason for the cheaper rates.

The figures are based on deals for various different loan-to-value (LTV) rates. Deals with higher LTVs – in other words, loans that require smaller deposits from borrowers – tend to be more expensive, but Moneyfacts said it was these sorts of loans that have seen the biggest rate falls.

“The drop to zero inflation has resulted in the constant speculation of a Bank of England base rate rise being kicked to the kerb for the time being,” said Sylvia Waycot, of Moneyfacts.

“Removing that concern has made it easier for lenders to drop some rates in order to be more competitive.

“As remortgage lending figures are still depressed due to many borrowers being happy on current standard variable rates, the competition for the limited number of new borrowers is intense, hence the fall in rates for higher LTVs.

“A happy consequence of zero inflation is that those on a higher LTV become less of a lending risk because the money in their pocket stretches further, making the risk of tipping into mortgage arrears less likely. Lenders normally factor this risk into the overall rate charged, so as the risk has lessened so has the rate.

“We sit on a virtual see-saw: next month inflation could rise or fall, and therefore two-year fixed mortgage rates could just as easily change, too.”