Mortgage rates are falling, as the market continues to recover from the shockwaves caused by the government's mini-budget in September - but figures remain high compared to last year.
More than 1,500 mortgages were withdrawn in late September, resulting in average rates on two-year fixes rising to a 14-year high. However, as some of the cheapest deals have now started to dip below 5%, there are signs that the market is calming somewhat.
Here, we explain why banks pulled their deals and outline the cheapest mortgages currently available.
Why did mortgage rates rise so steeply?
In September, some of the UK's biggest mortgage lenders withdrew their deals for home buyers and people remortgaging
The dramatic drop in the value of the pound following the mini-budget led to expectations that the cost of borrowing would increase more steeply than expected.
Faced with this prospect, a series of lenders pulled their deals overnight, leaving rates much higher than before.
The good news for borrowers is that deal numbers are now rising again and rates are slowly falling. Rates below 5% have now begun to return.
- Find out more: discover how rate changes could affect you with our mortgage repayment calculator
What's happening to mortgage rates?
Mortgage rates have been rising throughout 2022. Last month, the Bank of England increased the base rate to 3%. This was the eighth rise since last December, when the rate was at a historic low of 0.1%.
These hikes are part of the Bank’s attempts to keep rising inflation at bay. CPI inflation hit 11.1% in October, more than five times the target of 2%.
The cheapest mortgage rates are now around five times the record lows of 0.79% recorded a year ago, when there were more than 100 fixed-rate mortgages with rates below 1%.
Data from Moneyfacts shows that despite the recent drop, mortgage rates remain significantly higher than on 23 September, the day of the mini-budget.
| Type of mortgage | Average rate | Average rate on 23 September |
|---|---|---|
| Two-year fixed rate | 6.08% | 4.74% |
| Five-year fixed rate | 5.89% | 4.75% |
- Find out more: how to find the best mortgage deals
Note: The below figures are correct at time of writing, but there's no guarantee the specific deals we've listed will remain on the market. If you're looking to apply for a mortgage imminently, a whole-of-market mortgage broker will be able to give you up-to-date advice on your options.
Best rates for borrowers with bigger deposits
The best mortgage rates are usually available for people borrowing at 60% loan-to-value, although even these market-leading deals are now priced around 5%.
Two-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Nottingham Building Society | 4.59% | 5.5% | £1,999 |
| Coventry Building Society | 4.85% | 5.84% | £999 |
| Digital Mortgages by Atom Bank | 4.89% | 6.4% | £900 |
Cheapest rate with no upfront fee: 5.12% (Halifax)
Five-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Halifax | 4.5% | 6.49% | £999 |
| Nottingham Building Society | 4.64% | 5.5% | £1,999 |
| Virgin Money | 4.64% | 7.24% | £995 |
Cheapest rate with no upfront fee: 4.59% (Halifax)
Best rates on 90% mortgages
If you're looking to buy your first home, you can get a mortgage with a deposit of 5% of the property's value (known as a 95% mortgage). If you can stretch to a 10% deposit, however, you can benefit from a much lower rate.
Two-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Halifax | 5.45% | 6.49% | £999 |
| Platform | 5.45% | 5.87% | £1,499 |
| The Co-operative Bank | 5.49% | 5.87% | £1,499 |
Cheapest rate with no upfront fee: 5.62% (Halifax)
Five-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Halifax | 4.85% | 6.49% | £999 |
| Digital Mortgages by Atom Bank | 5.14% | 6.4% | £900 |
| Platform | 5.18% | 5.87% | £1,999 |
Cheapest rate with no upfront fee: 4.94% (Halifax)
Best rates on 95% mortgages
Borrowers with the smallest deposits generally pay the highest mortgage rates. With fewer deals available than before, many 95% mortgages are now priced at above 6%.
Two-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Halifax | 5.6% | 6.49% | £999 |
| Nottingham Building Society | 5.85% | 5.5% | £999 |
| Nationwide Building Society | 5.89% | 6.49% | £999 |
Cheapest rate with no upfront fee: 5.82% (Halifax)
Five-year fix
| Lender | Initial rate | Revert rate | Upfront fee |
|---|---|---|---|
| Halifax | 5% | 6.49% | £999 |
| Barclays Mortgage | 5.44% | 5.49% | None |
| Accord Mortgages | 5.54% | 6.49% | £495 |
Cheapest rate with no upfront fee: 5.09% (Halifax)
Does a lower rate always mean a cheaper deal?
Above, we've listed the deals with the cheapest initial rates. This gives a good indication of the rate you might be able to get, depending on the size of your deposit, but before choosing a deal you'll also need to factor in upfront fees.
Some lenders charge fees as high as £1,999 on their lowest-rate deals. By charging higher fees, lenders can offer better rates and recoup the shortfall elsewhere.
Banks commonly charge fees such as £999, £1,499 or £1,999, but some use percentages instead - for example 0.5% of the overall loan amount. If you're borrowing a larger sum, this can be significantly more expensive.
You'll usually need to pay a premium of 0.2%-0.5% to get a fee-free deal. Sometimes, this can pay off. For example, if you can get a mortgage at 5.5% with a £999 fee, or 5.6% with no fee, the latter will be cheaper over the fixed term.
If you're unsure about which type of deal to go for, a mortgage adviser will be able to analyse deals based on their true cost, taking into account rates, fees and incentives.
- Find out more: best mortgage lenders
How long should you fix your mortgage for?
Borrowers most commonly fix for either two or five years. Five-year deals were once significantly more expensive, but in most instances it's now actually cheaper to fix for longer.
Securing your rate for longer is a good idea in theory, but it's not the right move for everyone.
Five-year fixes usually come with higher early repayment charges, meaning that you could be charged thousands of pounds if you decide to repay the mortgage early (for example, if you move home and don't transfer it to the new property).
With this in mind, it's important to think of your own medium and long-term plans before settling on a fixed term.
What to do if you need to remortgage
- Find out when your current deal ends: If you have less than six months left on your fixed term, shop around for a new mortgage. If you have longer left, you might need to pay early repayment charges if you remortgage early. Take advice from a mortgage broker on your options.
- Work out your current loan-to-value (LTV): your repayments and any increases in the value of your home may mean you can remortgage at a lower LTV.
- Get a quote from your current lender: if you're coming to the end of your term, this may be available in your online mortgage account. If it's not, you might need to contact your lender.
- Research deals from other lenders and take independent advice: use comparison sites to get an idea of the rates currently available and consider taking advice from a broker.
- Decide on a mortgage term (e.g. two-year or five-year): there's little to choose in rates, so pick a term based on your own circumstances.
- Keep an eye out for any additional up-front fees: some deals might not be as cheap as they first seem. Compare the overall cost before settling.
You can find out more in our full story on remortgaging. If you're worried about making your mortgage payments, see our guide on what to do if you can't pay your mortgage.
Which? Money Podcast
On a recent episode of the Which? Money Podcast, we explained what high mortgage rates mean for people remortgaging or buying a home in the remainder of 2022 and beyond.
You can listen to the episode below.
undefinedsource https://www.which.co.uk/news/article/best-mortgage-rates-for-home-movers-and-first-time-buyers-a4UXE8P7K0bT