Mortgage rates begin to rise

Over the past few months, Moneyfacts have revealed that there has been a significant drop in products available with 202 less products between the months of July and August.

After the historic lows we saw last month this indicates that average rates are now beginning to increase. This is spread across the board as, even though we would expect higher LTV tiers to experience more significant rises, even the lower tiers have also increased their average rates.

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Eleanor Williams, finance expert at Moneyfacts, said: “The introduction of the stamp duty holiday and record low average rates following an enforced period of shutdown for the market has seen demand for mortgages escalate in recent weeks. However, product choice and availability remains a key issue for mortgage borrowers, with this month continuing the downward trajectory we saw between June and July; there were 2,526 live products as of the 1 August, a fall of 202 compared to last month, and 2,696 less than the number of products on offer at the start of March, meaning there is 48% less choice available to consumers as the industry continues to feel the impact of the Coronavirus pandemic.

“Until there is more certainty regarding the economic outlook and clarity around risk – which may well not become clear for some months, particularly until the Government furlough scheme winds down at the end of October – it seems unlikely that the mortgage sector will bounce back to the levels of availability that we saw six months ago, especially in the higher-risk tiers, where high levels of demand combined with stretched operational capacity remain a concern.

“Our latest research illustrates that rates are starting to creep upwards, with the two and five-year fixed averages for all LTVs both increasing by 0.09% this month, and averages for higher LTVs in particular experiencing even more significant increases. Rates at 85% LTV experienced one of the sharpest climbs, with the average two-year fixed rate increasing by 0.21% this month, and the five-year equivalent climbing by 0.23%, sitting at 2.32% and 2.57% respectively as a result.

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“However, when the current averages are compared to their equivalent rates last year, the overall two-year fixed rate for all LTVs at 2.08% is 0.41% lower than it was in August of 2019 (2.49%), and the five-year fixed at 2.34% is 0.50% lower this month than a year earlier (2.84%), meaning that we are still in an environment where cheap mortgage deals are available. Therefore, those who have been waiting to see how the market moves may want to consider pursuing a new deal now and lock into a low rate before they potentially climb further.

“With reports that bank profits may be falling and providers needing to set more funds aside for further coronavirus planning and potential defaults, this could signal the end of the historic low mortgage rates of recent months. Therefore, those looking to secure a new deal now may wish to move swiftly. The role of an experienced, independent adviser has never been more pivotal in ensuring borrowers are able to make an educated choice about the right product for their circumstances and priorities. With criteria and underwriting requirements being updated with a similar regularity to mortgage products themselves, being supported and guided through the mortgage application maze by a professional with access to the most up-to-date information would be wise.”<