Mortgage Rates Drop, But Lenders Tread Carefully
A Steady Decline, But Slower Cuts
If you’ve been keeping an eye on mortgage rates, there’s some good news. Rates have now fallen for four consecutive months. As of early June, the average two-year fixed mortgage rate decreased slightly to 5.12%, down by 0.06 percentage points from the previous month. Meanwhile, the average five-year fixed rate edged down to 5.09%, dipping just 0.01 percentage points.
While these reductions might seem promising, they are considerably smaller compared to the previous months, where two and five-year fixed rates had more significant drops of 0.14 and 0.08 percentage points, respectively, between April and May.
Why the Slowdown?
You might wonder why the rates aren’t tumbling faster, especially after the Bank of England lowered its base rate to 4.25% last month. The answer lies in how fixed mortgage deals are priced. Lenders often anticipate interest rate cuts and factor them into their fixed rates well ahead of time. This means that while variable rate deals can quickly reflect changes, fixed rates take longer to adjust.
Additionally, market volatility is playing a significant role. Swap rates, which influence the costs banks incur to borrow money for lending, have fluctuated, leading some lenders to increase rates recently. For instance, Barclays raised some of its mortgage rates by up to 0.24%, while TSB saw increases of 0.12%.
Hope on the Horizon?
While the mortgage landscape may appear cautious, there’s still a glimmer of hope. Caitlyn Eastell, a spokesperson from Moneyfacts, mentions that although the rate declines are modest, the potential for more cuts exists. Many lenders are currently below their 30-day lows, suggesting that more favorable terms could be just around the corner. Recently, Royal Bank of Scotland, NatWest, and TSB have already made slight decreases of up to 0.3%.
Current Housing Market Trends
Shifting gears to house prices, the average property value in the UK dropped by around £1,150 (or 0.4%) month-over-month in May, with the typical home now valued at about £296,648. However, it’s important to note that year-over-year prices have still increased by over £7,000.
This fluctuation follows a small 0.3% rise in April, indicating a cooling off in the rapid property price growth trend. The annual growth rate also decelerated to 2.5% in May, compared to 3.2% in April.
Bottom Line: Stay Informed
For those navigating the current housing market, it’s crucial to stay informed about changes in mortgage rates and market trends. As rates continue to drop, albeit at a slower pace, and with house prices showing mixed signals, it’s a good time to evaluate your mortgage options carefully.
Consider working with a mortgage broker or financial expert to understand the best paths forward for buying or refinancing a home in today’s market. Keep an eye on those rates—they might just be shifting in your favor!
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Bio: Priya specializes in making complex financial and tech topics easy to digest, with experience in fintech and consumer reviews.