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The cheapest five-year fixed-rate mortgage in the UK has hit its lowest level since before Liz Truss’s disastrous “mini” Budget upset the property market almost two years ago.
NatWest is now offering a five-year rate at 3.71 per cent, with a 40 per cent deposit and a higher product fee. The lender is also offering a 3.77 per cent loan with a standard fee on energy-efficient properties.
The last time cheaper loans were on offer was in early September 2022, according to property portal Rightmove and data provider Moneyfacts. The lowest rate shortly before the then Conservative prime minister’s “mini” Budget was 3.63 per cent, said Rightmove.
The news will add to the momentum behind the UK property market, which is still recovering from the shock caused by the Truss administration’s fiscal measures.
Her shortlived government announced a bonanza of spending increases and tax cuts in late September 2022 that spooked traders, leading to chaos in the mortgage market and a surge in borrowing costs.
“We now have a new lowest five-year fixed rate since before the ‘mini’ Budget,” said Matt Smith, Rightmove’s mortgage analyst. “It shows the positive downward direction of rates overall.”
The return of cheaper rates comes after the Bank of England in August cut its benchmark rate for the first time since 2020 to 5 per cent, from a 16-year high of 5.25 per cent.
Average mortgage rates are still notably higher than the levels of two years ago. The average five-year rate with a 40 per cent deposit was 4.7 per cent on September 1, above the 4.03 per cent average in 2022.
Lloyds chief executive Charlie Nunn in July said that mortgage rates should stay “pretty stable” overall in the near term as future BoE rate cuts were already priced into current mortgage offers.
The BoE has warned that millions of homeowners still haven’t felt the financial pinch from higher borrowing costs because they still have fixed rates in place.
Still, the downward trend in mortgage rates is good news for the property market, which is showing signs of improving demand, listings and transaction numbers.
Lenders have been competing to win business with attractive rates in certain parts of the market while remaining cautious not to go too far.
Rates for those buying a home — and in special categories such as homes with high energy-efficiency ratings — are generally cheaper than rates for homeowners remortgaging.
Other big lenders, HSBC and Barclays, have also cut their rates this week. Nicholas Mendes, mortgage technical manager at broker John Charcol, said rates were projected to keep falling but the market would have to wait until 2025 for “a more significant reduction to 4 per cent”.
“We can expect ongoing adjustments and a narrowing of fixed rates between purchase and remortgaging deals,” he added.
