Fixed rate mortgages have decreased by an average of 2.5 per cent since 2010, despite the Bank of England’s base rate remaining steady, according to research by Legal & General Mortgage Club.
Average monthly fixed rates have fallen by 2.23 per cent for two-year fixed mortgages, while rates on five-year fixed loans have also seen a consistent decrease - falling close to 3 per cent - despite interest rates being stuck at 0.5 per cent since 2009.
L&G’s analysis found that rates fell on average 0.4 per cent every year, as the UK continued to hold rates at the same historic low.
The downward trajectory of rates did experience a number of reversals however.
These variations largely corresponded with wider market turbulence, such as banks’ stress testing issues in early 2012 which affected lenders’ capital and the availability of funds, resulting in two-year rates rising from 2.92 per cent in September 2011 to 3.74per cent in June 2012.
The results also showed a marked fall in fixed rates in the run-up to the EU referendum, with speculation the BoE would opt to reduce the base rate following the result.
Average two-year fixed rates fell from 1.88 per cent to 1.74 per cent in this period, whilst five-year fixed rates saw a fall from 2.71 per cent to 2.57 per cent.
L&G suggested these reductions indicate lenders had already begun to price in a potential reduction in their mortgage rates well before the Monetary Policy Committee’s decision.
Jeremy Duncombe, director at Legal & General Mortgage Club, said these results demonstrate the base rate is not the defining factor in deciding mortgage interest rates.
“There has been a consistent and a substantial fluctuation in fixed rates since the 2009 decision to bring the base rate to an historic low level of 0.5 per cent,” he stated, adding it’s external factors, including availability of capital and the strength of the economy, that play a significant role in fixed rates.
“For all the speculation about the impact of an impending base rate cut, these figures clearly show that lenders have already priced in a rate reduction on their two and five-year fixed rate mortgages.
“It’s therefore unlikely that a reduction in interest rates by the Bank of England will see a further significant fall in mortgage rates.”
Mr Duncombe went on to point out that even if base rate is cut tomorrow (4 August), there is no guarantee standard variable rates would also fall, so now remains a good time for borrowers to consider their options, particularly if they are coming to the end of their mortgage term.
“To get the best deal, borrowers should speak with an adviser, as this will give them the best chance of securing a favourable deal on a mortgage that suits their circumstances,” he added.
peter.walker@ft.com
