Mail Online / This is Money mortgage story

ended 12. October 2021

A journalist at the Mail Online / Thisismoney is writing an article on new Moneyfacts data showing that, in the last month: 

  • the most dramatic month-on-month average rate cuts to LTV tiers were recorded at 90% and 95%, where the two-year fixed rates dropped to by 0.29% and 0.25% to 2.56% and 3.32% respectively.
  • Overall, the average two- and five-year fixed rates fell for a fourth consecutive month. The average two-year rate fell by 0.13% to 2.25% while the five-year equivalent dropped by 0.08% to 2.55%, both sitting at their lowest level since September 2020 (2.24% and 2.49% respectively).

She would specifically like to know what this data means for first time: will rates go much lower for FTBs, and if so how much lower? Is now a good time for FTBs to lock in to a five-year fix? And how could this all be impacted by inflation/cost of living/potential interest rate rises? 

Keep your responses short and to the point! Deadline is tight.

8 responses from the Newspage community

"The reason why they appear so dramatic is because all the fun was being had at the other, high deposit, end of the market. As such it was only a matter of time before the lenders got around to other bandings at the low deposit end of the scale. Clearly it is good news for first-time buyers and those with smaller deposits and we have probably regained a lot of the ground lost during the pandemic when the low deposit sector was hit particularly hard by lenders taking a risk-off approach. "Given that many economists have brought forward their prediction of a base rate move from Q4 of 2022 to, at worst, November or December of this year, I would suggest locking down a fixed rate today could be very beneficial in the medium to long term."
"The best advice is don't get hung up on rate at all. It's the last thing to consider when it comes to getting your first mortgage. In order of importance, it's who's going to loan you the amount you need for the length of time required, then what type of deal is most appropriate for you. This will vary from person to person. Then it's who do you pass the credit score with and only then, of those deals that are left, do you focus on the best deal, taking into account fees, speed of service, the flexibility of the deal and any other factors that are important. That is the best deal. To keep harping on about average rates does nothing for anyone. "When is the best time to buy - 1971 - and the second-best time is now. It's a good time to buy if you're able to and a bad time to buy if you're not. Just get on the ladder as soon as you can. Don't try to predict the market, most economists only get it right at best 50% of the time, and even then there's the old adage that a stopped clock is right twice a day."
"All those first-time buyers who locked in for five years at 3% last year will be kicking themselves now. The only problem with taking a 5-year fixed rate is that you can lock yourself out of an even better rate in two or three years' time when you might only owe 85% of you property’s value. First time buyers should focus more on how long they can see themselves living in a given property over the fixed period. For nearly a decade, people having been fixing for five years saying rates can’t go any lower, but somehow they have. I’ve had clients who’ve received their mortgage offer and then the lender subsequently lowered their rates twice before the purchase was completed. The lender offered the new, lower rate product which is great news."
"With the difference between the five-year fixed rates and two-year fixed rates so small, the five year offers better value for money. It will also remove the need to pay fees again at the end of years two and four as you are not remortgaging, and at a time when it looks like rates will be higher. But first ask yourself how long you are likely to stay in your new home for, as there are likely to be Early Repayment Charges if you want to move while on a five year fixed rate."
Rates are falling and will continue to fall as demand slows, and now lenders can get fuel in their vehicles they will continue to chase business as less begin to buy, what does this mean if you want to buy? Now has never been a better time, with prices stabilising, less competition and low rates, its the making of a perfect storm for a first time buyer.
Don't lose sight of the end goal - you are buying a home, not a mortgage rate. Noone ever came home, threw their keys on the side table and screamed "If only I'd got the mortgage at 2.56% instead of 2.85!". In real terms, on a £237000 mortgage, over a 25 year term, we're looking at a difference of less than £50 per month - yes it's significant, but it's not deal-breaking or life-changing for the most part. The other problem being too rate focused can bring is you miss the other costs; what's the arrangement fee, or the valuation fee? The fees can have a more significant impact on the overall value of a deal compared to a few percentage points on the rate, especially as the loan size being looked at gets lower. As for the debate of 2-year or 5-year deals, this may be taken out of your control. Some lenders only offer high loan-to-value (LTV) deals on a 5-year fixed rate basis, many others allow you to borrow more on a 5-year than a two year deal - if you are stretching your income to buy your dream home that may be the deciding factor. "If you are able to choose then the question you need to ask is not about the rates, but the commitment to the lender, as they will come with Early Repayment Charges (ERCs). So the real question is: do I see this as home for at least the next five years, or is it a stepping stone and I'll be looking to move again in two or three years time? "You also need to remember that, although a two year deal often has a fraction lower rate than the equivalent five year deal, the fees and costs of setting them up are often the same - spreading those cost over 60 months, rather than 24, could more than make up for the difference in rate."
"As interest rates have tumbled, this can only be good news for first-time buyers, who have seen house prices rise albeit at a slower pace since the end of the stamp duty deadline. The price war lenders appear to be engaged in will inevitably be tempered with factors in the wider economy: inflationary pressures building, the cost of living crisis to name but two so this is likely to put a brake on further rate cuts. "In terms of 5-year rates, there has never been a better time to fix. First-time buyers need certainty and with rates at the current level and the medium-term view of potential rate increases, the attraction of fixing for the longer term has never been greater and is probably a wise decision."
"These interest rate reductions show a real appetite from banks to start lending again at levels not seen since pre-Covid to those with a 5-10% deposit. This can only be a positive for first-time buyers looking to get on to the property ladder as competition between banks continues to drive rates back down. Inflation is something that is coming back on the agenda, and with early predictions of rates increasing in Q2 of next year, having the security and stability of payments for 2-5 years is vital for anyone jumping into the property market. Whether FTBs should lock into a two or five year fixed rate is something that needs to be discussed with a mortgage adviser. Ultimately there is no right or wrong answer, it depends on many things including the profile of the person buying the property, their attitude to risk, future plans and income."