Mortgage Rates Fall To Low Levels

Mortgage rates have fallen to the lowest levels in a year as competition amongst lenders increases and lending conditions improve slightly.

Following the unprecedented drop in interest rates to 0.5% last year, the initial fall in mortgage rates gradually petered out as lenders took the opportunity to increase their margins in the midst of the credit crunch.

Mortgage rates crept up and reached a peak in August 2009, but have been gradually falling again every since. This is because of a gradual thaw in lending constraints and increasing competition in the mortgage market.

Mortgage rates are now at their lowest levels for 12 months, according to Moneyfacts, who monitor the number and types of mortgage products that are available at any one time.

For example, the average two year fixed rate mortgage is currently set at 4.63% whereas lenders were charging peak rates of 5.21% on average towards the end of 2009. Similar falls can be seen in 5 year fixed rate mortgages – which are currently set at 5.85%, but hit a peak of 6.24% since the fall in base rates to 0.5%.

Not only have mortgage rates fallen to annual lows, the number of mortgage products has also increased as lenders renew their interest in offering mortgages. There are currently 2,076 mortgage products available, the highest level since December 2008 and a 71.7% increase since the all time low level of 1,209 seen in April 2009.

Borrowers will also be pleased to see a slow return to smaller deposit requirements as there are currently 19 mortgages available with only a 5% deposit requirement (95%) LTV compared to only three offered a year ago.

This is echoed by Michelle Slade, spokesperson for Moneyfacts.co.uk, who said:

“Lenders are becoming more active in the mortgage market, which is welcome news for borrowers as increased competition is one of the overriding factors in driving rates downwards.

“A 25% deposit remains the benchmark for the majority of the most competitive deals. However, borrowers with a small deposit are increasingly getting access to a wider proportion of the market.

“The platform is developing for a resurgence in the mortgage market, but lending figures show that there is still a way to go before the market returns to any sort of normality.”