Mortgage rates are falling and choice is increasing

Mortgage rates are falling and product choice is increasing as the market continues to stabilise.

A total of 4,341 different deals are currently available, up from 3,643 in January, marking the first time product choice has risen above 4,000 since August last year.

The average interest rate charged on both two-year and five-year deals has also fallen for the third month in a row, according to financial information group Moneyfacts.

Mortgage rates fall to below 4% for lower loan-to-value mortgages

The typical cost of a two-year deal is now 5.44%, down from 5.79% in January, while interest on five-year fixed rate mortgages has dropped to 5.20%, from 5.63%.

The latest fall puts the cost of both products back where they were in October 2022, despite the Bank of England Bank Rate rising by 1.75% during the same period.

In further good news, the average amount of time a mortgage is available before it is withdrawn has increased to 28 days, the highest level since March 2022, and up from just 15 days in January.

Mortgage lenders withdrew products and hiked their rates in the wake of former Chancellor Kwasi Kwarteng’s mini-Budget in September last year.

The turmoil caused by the mini-Budget led to a steep rise in government borrowing costs, which in turn impacted the rate at which lenders borrow money for fixed rate deals.

As a result, banks and building societies pulled products for repricing, with the number of different mortgages available dropping to just 2,258 at the beginning of October.

But the market has been recovering steadily since Jeremy Hunt took over as Chancellor and reversed nearly all of the measures in the mini-Budget.

As a result, mortgage rates have been on a downward trend, despite the Bank Rate moving in the opposite direction.

Mortgage availability has increased across all deposit levels. The biggest rebound has been for people with a 40% stake in their home, with 606 products now available, the highest level for three years and up from 484 in January.

There is also good news for first-time buyers, with 149 mortgages on the market for people with only a 5% deposit and 539 for those with a 10% one.

Rates are also falling across the board, with the average cost of a five-year fixed rate product for those with 40% to put down back below 5%, while two-year fixed rate deals for people borrowing 95% of their home’s value are averaging 5.99% and five-year ones are 5.53%.

If you are sitting on your lender’s standard variable rate – the rate you are automatically put on when your existing deal comes to an end – you may want to think about remortgaging.

The average standard variable rate is currently 6.84% – its highest level since October 2008.

Remortgaging from this rate to an average five-year fixed rate deal of 5.2% would save someone with a £200,000 mortgage £200 a month.

Competition among lenders is currently more focused towards five-year fixed rate deals than two-year ones, with the gap between the interest charged on five-year and two-year products standing at 0.24%, the biggest margin for 15 years.

If you have enough flexibility in your budget to cope with future interest rate rises, you may want to consider a tracker mortgage.

Two-year tracker deals currently average 4.39%, although it is important to note that, unlike fixed rate mortgages under which the interest rate stays the same for the product term, tracker mortgages move up and down in line with changes to the Bank Rate.