Overall average cost of a two-year fixed-rate mortgage across the different loan-to-values has dropped to below 3 per cent for the first time, according to analysis by Moneyfacts.
At the start of March the average stood at 3.06 per cent, but by 30 March it had dropped to 2.98 per cent.
The comparison site suggested that the drop in rates is due to increased competition and falling swap rates, which makes it cheaper for banks and building societies to borrow money to lend out in mortgages.
It added that the interbank rates are falling as speculation increases that base rate will remain at 0.50 per cent for a long time, along with the 0 per cent inflation rate.
Sylvia Waycot, editor at the website, stated that the drop to zero inflation has resulted in the constant speculation of a Bank of England base rate rise being kicked to the kerb for the time being.
“Removing that concern has made it easier for lenders to drop some rates in order to be more competitive.”
She pointed out that remortgage lending figures are still depressed due to many borrowers being happy on current standard variable rates, so because the competition for the limited number of new borrowers is intense, rates have fallen for higher LTVs.
“A happy consequence of zero inflation is that those on a higher LTV become less of a lending risk because the money in their pocket stretches further, making the risk of tipping into mortgage arrears less likely.
“We sit on a virtual see-saw with inflation balanced at the other end: next month inflation could rise or fall, and therefore two-year fixed mortgage rates could just as easily change, too.”
The average two-year fixed rate is taken from all the different LTVs in the two-year sector, with Moneyfacts finding that it is the higher LTVs that are benefitting most from the drop in average rates.
Today there are 1,174 two-year fixed rate deals on the market. Last week FTAdviser reported yet more rate cuts by leading lenders on two-year fixed deals.
Earlier this month, Nationwide pulled a ‘market-leading’ 10-year mortgage rate for new customers due to swap rate increases.
peter.walker@ft.com
