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Did you know that a two-year fixed rate mortgage is now available at 1.18% (4.99% subsequent rate, APR 4.4%, maximum LTV 65%, arrangement fee £1,499) and a five-year fixed rate mortgage at 2.19% (5.45% subsequent rate, APR 4.3%, maximum LTV 60%, arrangement fee £1,675)?
The Bank of England has reported that fixed rates are at record lows. In fact several banks are now charging less for their mortgages than they are paying on their best ‘easy access’ saving rates. The next few months could prove the best time in history to take out a fixed rate mortgage.
2 year swap rates (which reflect the costs to lenders of funding fixed rate mortgage) are historically fairly low, but 52 basis points higher than their lowest point in February 2013 – and rising (see chart).
As we have pointed out in earlier blogs, it is competition between lenders that is driving mortgage rates down at this point in the cycle, not the underling funding costs. The arrival of new entrant banks in the UK mortgage market has also increased competition, driving down rates further. The next few months could prove the best time in history to take out a fixed rate mortgage as experts do not foresee rates falling any further, later on this year.
But while many banks are offering extremely competitive fixed rates, potential borrowers must still pass strict affordability tests which were introduced by the Financial Conduct Authority via its Mortgage Market Review last April and a further recommendation by the Bank of England last June that no more than 15% of new lending was for loans worth more than 4.5 x income.
Both of these restrictions caused the mortgage market to slow down slightly in the second half of last year as lenders adapted to the new lending environment, but they are now making up for lost time and competing aggressively for customers once again.
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