Fixed-rate mortgage rates fall to two-year low
The average rate for a five-year fixed-rate mortgage has fallen over the past year from 5.59% to 4.86%.
The falling rate will excite interest from homeowners as many lenders are set to increase their standard variable rates (SVR) from 1 May.
"Average rates for five-year fixed-rate deals have been falling steadily for the past couple of years," says Louise Holmes, spokesperson for moneyfacts.co.uk.
"Fixed-rate mortgages offer the reassurance of a set monthly payment and can be beneficial when planning financial budgets as the repayment amount remains the same over the duration of the term."
The best five-year rate on the market at present is 3.69% offered by Leek United Building Society to those with a 25% deposit. The fee is £995.
The best rate for those with a smaller deposit is 4.4% from Hanley Economic Building Society, which is available to homeowners with a 15% deposit. There are no fees.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.