More than 1,500 mortgages were withdrawn last September, resulting in average rates on two-year fixes rising to a 14-year high. However, the market is now calming, and some of the cheapest deals have fallen below 4% for the first time in months.
Here, we explain why the market is so different to how it was 12 months ago, and outline the cheapest mortgages currently available.
Why did mortgage rates rise so steeply?
Last 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% are now common, and in the past week, sub-4% deals have appeared.
Find out more:What's happening to mortgage rates?
Mortgage rates rocketed in 2022, but they began to drop slightly in the latter part of the year.
These hikes are part of the Bank’s attempts to keep rising inflation at bay. CPI inflation currently stands at 10.5% - more than five times the target of 2%.
Data from Moneyfacts shows that despite the recent drop, mortgage rates remain significantly higher than on 23 September, the day of the mini-budget.
Find out more: Note:Best rates on 60% mortgages
Two-year fix
Cheapest rate with no upfront fee:Five-year fix
Cheapest rate with no upfront fee:Best rates on 75% mortgages
Those who can afford to put down a 25% deposit - or who are remortgaging at a lower LTV - will also benefit from better deals.
Two-year fix
Cheapest rate with no upfront fee:Five-year fix
Cheapest rate with no upfront fee:Best rates on 85% mortgages
Reaching further towards the lower-deposit scale, mortgage rates are more expensive - though plenty of deals below 5% can still be found.
Two-year fix
Cheapest rate with no upfront fee:Five-year fix
Cheapest rate with no upfront fee:Best rates on 90% mortgages
Two-year fix
Cheapest rate with no upfront fee:Five-year fix
Best rates on 95% mortgages
Borrowers with the smallest deposits generally pay the highest mortgage rates.
Two-year fix
Cheapest rate with no upfront fee:Five-year fix
Cheapest rate with no upfront fee: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.
Find out more: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.
With this in mind, it's important to think of your own medium and long-term plans before settling on a fixed term.
Which? Money Podcast
On an episode of the Which? Money Podcast, we explained what high mortgage rates mean for people remortgaging or buying a home in the current climate.
You can listen to the episode below.
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