The cheapest five-year fixed-rate mortgage in the UK has hit its lowest level since Liz Truss’s drastic “mini” budget almost two years ago. NatWest is now offering a five-year mortgage with a 3.71 per cent interest rate, provided the buyer brings a 40 per cent deposit and accepts higher product fees. A standard fee applies to a 3.77 per cent interest rate on energy-efficient properties.
According to the real estate portal Rightmove and the data provider Moneyfacts, cheaper loans were last offered in early September 2022. At that time, the lowest interest rate was 3.63 percent, just before the then conservative prime minister’s “mini” budget.
The news will further boost the revival of the UK property market, which is still recovering from the shocks of the Truss government’s fiscal measures. The government announced a major programme of spending increases and tax cuts in late summer 2022 that caused turmoil among traders and led to chaos in the mortgage market and a rise in borrowing costs.
Matt Smith, mortgage analyst at Rightmove, commented: “We now have the lowest five-year fixed rate since the ‘mini’ budget. This shows the overall positive direction of interest rates.”
The return of cheaper rates comes after the Bank of England cut its base rate to 5 percent in August for the first time since 2020, from a 16-year high of 5.25 percent. However, average mortgage rates are still well above the levels of two years ago. The average five-year mortgage with a 40 percent down payment was 4.7 percent on September 1, compared to an average of 4.03 percent in 2022.
Lloyds CEO Charlie Nunn said in July that mortgage rates overall are likely to remain “fairly stable” in the near future, as future BoE rate cuts have already been factored into current offers.
The BoE has warned that millions of homeowners are not yet feeling the financial burden of higher borrowing costs because they still have fixed interest rates. Nevertheless, the downward trend in mortgage rates is good news for the property market, which is showing signs of rising demand, more listings and transactions.
Lenders compete for business with attractive interest rates in certain market segments, while remaining cautious not to go too far. Interest rates for home purchases and special categories such as energy-efficient properties are generally cheaper than those for remortgage.
Other major lenders such as HSBC and Barclays have also cut their interest rates this week. Nicholas Mendes, mortgage manager at broker John Charcol, predicts a further fall in interest rates, but does not expect a significant reduction to 4 percent until 2025. “We can expect ongoing adjustments and a convergence of fixed interest rates between purchase and remortgage offers,” he added.
The Cheapest Five-Year Fixed-Rate Mortgage in the UK: A Turning Point for Homebuyers
Table of Contents
In a significant development for the UK mortgage market, the cheapest five-year fixed-rate mortgage has reached its lowest point since the tumultuous “mini” budget introduced by Liz Truss almost two years ago. NatWest is currently offering a competitive five-year mortgage with an interest rate of just 3.71%, provided buyers can present a substantial 40% deposit and are willing to manage higher product fees. This marks a turning point that could signal a revival in the property market as it navigates the impacts of previous fiscal upheavals.
Understanding the Current Mortgage Landscape
Recent data from real estate portal Rightmove and financial information provider Moneyfacts indicates that the return of lower mortgage rates is a positive indicator of shift within the UK property sector. In early September 2022, just prior to the period widely known for its market instability, the lowest available interest rate stood at 3.63%. This period was marked by significant fiscal reforms that led to a rise in borrowing costs and uncertainty for homeowners.
Key Highlights:
- Current Lowest Rate: NatWest offers a five-year fixed rate at 3.71% with a 40% deposit.
- Historical Context: The cheapest rate previously observed was 3.63% in September 2022, prior to the financial turmoil.
- Energy-Efficient Properties: An interest rate of 3.77% applies to energy-efficient homes, accompanied by standard fees.
The Aftermath of Fiscal Policies
The government’s fiscal decisions, enacted in late summer 2022, aimed to implement extensive spending increases and tax cuts. However, these measures resulted in market volatility, adversely affecting mortgage rates and leading to increased borrowing costs for many. Analysts now view the current trends as optimism for recovery, reflecting an overall positive trajectory in interest rates.
Insights from Industry Experts
Matt Smith, a mortgage analyst at Rightmove, commented on the recent shifts, stating, “We now have the lowest five-year fixed rate since the ‘mini’ budget. This shows the overall positive direction of interest rates.” His analysis reveals a growing confidence within the market as more customers regain access to attainable mortgage options.
Understanding the Implications of Recent Bank of England Moves
In August, the Bank of England (BoE) announced a reduction in its base rate from 5.25% to 5%, marking a crucial first step towards easing the financial burden for many homeowners. While average mortgage rates are still elevated compared to two years ago—average rates were around 4.7% for a five-year mortgage with a 40% deposit as of September 1, 2023—this new environment of generally lower rates presents a promising landscape for prospective homebuyers and existing owners looking to remortgage.
Charlie Nunn, the CEO of Lloyds, also mentioned that mortgage rates are predicted to remain “fairly stable” in the near term, as anticipated future rate cuts are already integrated into current mortgage offers.
Looking Ahead: What’s Next for the Housing Market?
Despite the promising trends, it’s important to note that millions of homeowners are insulated from the immediate impacts of rising borrowing costs owing to the fixed rates they currently hold. As these fixed terms eventually expire, a new wave of financial adjustments may arise. Nevertheless, the downward trend in mortgage rates has already started to invigorate the property market, characterized by signs of rising demand, increased listings, and a tendency towards stabilizing property value assessments.
Conclusion
The reintroduction of competitive mortgage rates, particularly the recent offering from NatWest, is a significant moment for the UK property landscape. As the market continues its recovery path, potential homebuyers can find renewed hope in affordability and access to financing options that were previously out of reach. This changing climate not only reflects an ongoing recovery from past policy shocks but also suggests a rebirth of optimism within the housing market as we move forward into 2024.
If you are considering purchasing a home or refinancing your current mortgage, now may be the ideal time to explore the recent mortgage offerings and capitalize on these advantageous rates before they change.
