Average UK Five-Year Mortgage Rate Falls Below 6%

In what could prove welcome news for at least some prospective borrowers, average interest rates on five-year fixed mortgage deals have fallen below 6%. This is the first time average rates have dipped below 6% since Kwasi Kwarteng’s catastrophic mini budget two months ago, which, along with crippling the UK economy, also cost him his job.

Importantly, experts believe that further reductions are on the horizon and that prospective borrowers could potentially benefit by holding out a little longer.

Newly published data from Moneyfacts shows that five-year fixed-rate mortgage deals are now being offered with an average APR of less than 6% for the first time in seven weeks. Jeremy Hunt’s attempts to calm financial markets and restore some confidence in the UK economy seem to be having an impact, but there is still some way to go before Mr Kwarteng’s damage is fully reversed.

As for whether now is the time to take advantage of this small but welcome reduction in average mortgage rates, the general advice among experts is to hold out a little longer.

“Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement,” said Rachel, a finance expert at Money Facts.

“Borrowers who paused their homeownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.”

All indications point to further (albeit minor) interest rate falls on the horizon, which, over the course of a typical mortgage, could amount to significant savings for borrowers.

“It is worth noting that rates could fall further still, but there is no clear answer as to how quickly that may be,” Rachel added.

“Indeed, it’s been about two months since both the average two- and five-year fixed mortgage rate breached 5%, but today only a handful of lenders are offering sub-5% fixed deals.”

“Borrowers may feel they have to be patient for a little while longer before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”

A steady drop in house price growth

The news from Moneyfacts comes shortly after the single sharpest drop in average property prices recorded since early last year: down 0.4% in October compared to the month before.

“There’s no doubt the housing market received a significant shock as a result of the mini-Budget, which saw a sudden acceleration in mortgage rate increases,” commented Kim Kinnaird on behalf of Halifax.

Data suggests that annual house price growth for October came out at 8.3%, which is a significant decline from the prior 9.8%. On average, house prices fell by £1,066 between September and October, coming out at £292,598.

Unsurprisingly, the first-time buyer market has been hit hardest of all, as prospective buyers find it increasingly difficult to qualify for high-street mortgages. Many banks have withdrawn their high LTV products entirely; a typical first-time buyer now faces a minimum deposit requirement of around £45,000.

Affordability in the housing market has been all but wiped out by skyrocketing mortgage rates. According to Moneyfacts, the average two-year fixed-rate deal has leapt from 3.25% in June to around 4.24% in September.

Following Kwasi Kwarteng’s disastrous mini-budget, average two-year fixed-rate mortgages temporarily peaked at 6.65% in mid-October. Nerves were calmed slightly following his swift and unceremonious exit, but mortgage rates are still high and set to climb further. Some mortgage payers are likely to find the coming months particularly difficult as their introductory deals come to an end.