Homeowners Welcome Rate Drop Below 6%
Homeowners are experiencing a significant development as the interest rate on the average five-year fixed mortgage has dropped below the 6% mark for the first time in nearly three months. According to financial information firm Moneyfacts, this shift echoes a similar occurrence recorded on 3rd July when the average five-year rate fell below 6%.
Notable Shift in Mortgage Landscape
According to Moneyfacts on Thursday, the average cost of a five-year fixed mortgage has now dropped to 5.99%, marking a significant shift in the mortgage landscape. This change presents both potential and existing homeowners with more affordable financing options. Although it is still possible to find both cheaper or more expensive rates, there has been a noticeable decrease in the overall average rate.
Impact of Bank of England’s Measures
Mortgage payments have been steadily increasing as a result of the Bank of England’s measures to combat inflation, which currently stands at 6.7%, three times higher than the bank’s target of 2%. Lenders have been gradually raising their mortgage rates in response to the continuous rise in interest rates set by the bank’s Monetary Policy Committee.
Changing Tide in Mortgage Rates
The tide seems to be changing, with mortgage rate hikes reversing. A surprising decline in key inflation indicators led the Bank to pause its program of 14 rate hikes, maintaining a steady rate of 5.25%. While the year-to-August inflation rate remains high at 6.7%, it falls short of economists’ initial expectations and contributed to the decision to keep the base rate unchanged.
Consistent Drop in Mortgage Rates
Even before the latest official inflation data emerged, average mortgage rates had consistently dropped. This trend mirrored the significant decline in inflation figures. The reassuring impact of these inflation statistics has boosted market confidence, leading to the expectation of fewer interest rate hikes. As a result, financial institutions have responded by offering reduced borrowing costs on their mortgages.
Broad Impact on Mortgage Products
The positive effects of the rate changes extend beyond five-year fixed mortgages alone. The average two-year fixed mortgage rate has also decreased to 6.5% from Wednesday’s 6.53%. In fact, this rate briefly exceeded the 6% threshold in June.