Mortgage rates at lowest level on record
Interest rates on both fixed and tracker mortgages have dropped to their lowest levels for 23 years when rates were first recorded.
The average two-year fixed rate mortgage is now 4.32%, while the average three-year deal is 4.82%, according to data provider moneyfacts.co.uk.
The fall has been caused by rising competition between lenders, driving them to lower their prices to attract new customers.
With the Bank of England base rate at an historic low (0.5%) for 27 consecutive months, lenders have also found it cheaper to lower rates.
No interest rate rise
This news contradicts results from earlier this year when mortgage rates began to rise due to fears that the base rate would be increased.
But the surprising fall in inflation in April was enough to delay a rate rise and experts now believe the base rate will not start to rise until next year and lenders should continue to keep their prices low until then.
The research is positive for homeowners who are being battered by rising household bills and there is also good news for first-time buyers as the price of deals with the smallest deposits have also started to fall.
Michelle Slade, spokesperson for moneyfacts.co.uk, says: "Lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands."
Slade also says while rates could still fall further, it’s more likely lenders will improve their current deals for borrowers with smaller deposits.
But she warns as base rates will inevitable begin to rise again, "If borrowers delay too long to secure a new mortgage deal, they could find that they miss out on some of the lowest rates ever seen."
Want to find a better mortgage deal before interest rates rise? Check out our guide.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.