Initial mortgage rates below 2% could become standard for mortgages as lenders compete to bring in customers before the end of the year.
The overall cost of mortgages fell in in the third quarter of 2014 and is expected to fall further before the end of the year, the Bank of England (BoE) reports.
The more competitive rates have mainly been seen in variable rate and tracker mortgages, but fixed rates have also slightly fallen or remained level – surprising given that there is high chance of a rate rise next year.
The best initial rates for a first time buyer with an 80% LTV are:
- 1.85% for a variable mortgage offered by Hinckley and Rugby
- 1.99% for a tracker mortgage offered by Woolwich
- 2.24% for a fixed mortgage offered by Platform
Supply and demand
The BoE links the fall in cost to borrowers to a fall in demand in mortgages, which has likely lead to lenders competing more for customers. The following graph shows demand for mortgages since 2007:
However, demand is forecast to significantly pick up again by the end of the year, possibly as a consequence of house price growth slowing down as 2014 comes to an end.
Banks costs lower
The fall in demand has coincided with a drop in the cost of lending, as the internal transfer cost for inter-bank lending saw a big fall this summer.
The BoE states that another possible cause for the fall is that the number of mortgage defaults has declined and lenders are less concerned with losses as a result.
A good time to get a mortgage?
If you’re in a position to buy a home or remortgage the relatively low rates on offer will be welcome news.
First time buyer – Read up on our guides to get to grips with everything you need to know. Fixing a rate now could be a wise move with a rate rise likely next spring. Though make sure if you’re taking out a variable or tracker mortgage at the low rates available now that you will still be able to afford your repayments if they increase.
Remortgaging or moving home – You could benefit from mortgage lenders competing to get a better interest rate. However, make sure that the fees from switching and chances of a rise next year make it worth changing to a new mortgage.