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Bloomberg
The cost of a five-year fixed-rate mortgage has fallen below 6% for the first time in almost seven weeks, providing a glimmer of hope for Britons affected by the UK’s home loans crunch.
The average five-year fixed-rate mortgage falls to 5.95% on Tuesday, according to Moneyfacts Group Plc. That’s the first time it has dropped below the threshold since October 5 when key mortgage rates were spiraling towards 14-year highs. The average two-year fixed rate deal also falls to 6.13%, the lowest it has been since October 6.
Meanwhile, a crucial rate used by British lenders to price mortgages has fully recovered from the leap triggered by then-Prime Minister Liz Truss’s mini-budget in September. The two-year swap-curve reference rate for UK banks’ home loan pricing has reversed after rising 1.5 percentage points during Truss’s tenure, according to a Bloomberg Intelligence report.
This has relieved “much of the considerable pain in the mortgage market,†where rates had spiked to 7% in the aftermath of the September 23 fiscal statement, which spooked the markets by revealing a series of unfunded tax cuts.
The “drop in UK swap rates and a return of liquidity to the sub-90% loan-to-value mortgage-market echelons are driving pricing lower,†BI analyst Jonathan Tyce wrote in a report.
Still, monthly payments are set to double for many of the 1.8 million households due to refinance in 2023, according to the report, citing UK Finance data. This jump in pricing will disproportionately affect younger homeowners, exacerbating Britain’s divide in wealth and ownership, the research added.
The Office for Budget Responsibility said last week that mortgage rates will stay close to 5% for the next five years as the era of easy money comes to an end. Homeowners’ average loan rates will rise steadily before peaking in the second half of 2024, according to its latest forecasts.