Fixed mortgage rates falling after interest rate freeze

The mortgage market is showing signs of recovery, with average fixed rates falling and the widest choice of mortgage deals seen for a year and a half.

At the same time, it's currently a buyers' market in many parts of the UK, with asking prices being discounted by an average of 4.2%.

Average five-year rate back below 6%

Last week, the average rate on a five-year fixed mortgage dropped below 6% for the first time in nearly three months.

Financial information service Moneyfacts said that as of Thursday, the typical rate stood at 5.99%.

Mortgage rates were driven up by 14 consecutive interest rate hikes by the Bank of England's Monetary Policy Committee (MPC). The average rate for a two-year fixed mortgage hit 6% in the middle of June 2023, while the average five-year deal climbed above 6% in early July. Both continued to rise over the summer.

At its last meeting, the MPC voted to keep the base rate unchanged at 5.25% and this -- together with positive inflation data -- has given lenders confidence to cut rates.

The average rate for a two-year deal has also been coming down and currently sits at 6.50%.

Separate data from Moneyfacts showed that the number of mortgage options available to borrowers rose month-on-month to 5,338 by the start of September -- the highest level recorded since February 2022.

£12,000 average cut in asking prices

Mortgage costs are still relatively high, however. In October 2021, the average rate on a five-year deal was just 2.55%.

A combination of higher mortgage rates and cost-of-living pressures has weakened demand in the housing market and reduced the number of sales.

This, in turn, has led to sellers cutting their asking prices in order to secure a sale, property website Zoopla reports. The average discount on the asking price for a newly agreed sale is now 4.2%, or £12,125 -- the biggest average discount since March 2019.

"The housing market continues to adjust to a higher mortgage rate environment," said Richard Donnell, executive director at Zoopla. "Buyers continue to remain cautious and many are waiting for better value for money and improved affordability from lower house prices or further falls in mortgage rates before returning to the market."

Affordability set to 'gradually improve'

The latest Nationwide house price index, released on Monday, shows that average prices were down 5.3% year-on-year in September -- a reduction of around £14,500 compared to the same month a year ago. Prices were unchanged over the month.

Across the UK, the average house price currently stands at £257,808.

If the downward pressure on longer term interest rates is sustained it will ease some of the pressure on those remortgaging or looking to buy a home, said Robert Gardner, Nationwide's chief economist.

"Nevertheless, with Bank Rate not expected to decline significantly in the years ahead, borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic," Gardner added. "Instead, it appears more likely that a combination of solid income growth together with modestly lower house prices and mortgage rates will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim."