Moneyfacts have released new data showing that interest rates on new mortgages are currently at their lowest level for 23 years. This has been put down to the greater ease with which lenders can raise funds through the financial markets at a time when there is no imminent prospect of the Bank of England raising its base rate above 0.5%.
The average two-year fixed rate mortgage is now 4.32% interest, with three-year fixed deals averaging 4.92% and five-year fixed deals at 5.92%. The average interest rate for a two-year tracker is currently 3.37%.
The benefits of lower rates may be limited for many consumers, as low rates are often coupled with high arrangement fees, and the majority of deals still require borrowers to pay a minimum 20% deposit.
Michelle Slade at Moneyfacts said “Lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands.”
Until recently, experts were predicting that the base rate would increase as soon as September, but the poor performance of the economy, and the decision by a new member of the Bank of England’s rate-setting committee to vote against changing the rate, means rates are unlikely to rise until well into 2012.
Inevitably, interest rates will rise at some stage. Anyone opting for a variable rate mortgage therefore needs to think carefully about whether they will be able to afford this when the monthly repayments increase.
Indeed, Richard Banks (chief executive of UK Asset Resolution) has warned that Britain will face a ‘tsunami’ of house repossessions when interest rates do eventually go up. UKAR is responsible for running the nationalised mortgages of Bradford & Bingley and parts of Northern Rock.