Average fixed mortgage rates
Aug-23 Article continues after advert | Jul-24 | Aug-24 | |
Two-year fixed | 6.85% | 5.95% | 5.77% |
Five-year fixed | 6.37% | 5.53% | 5.38% |
10-year fixed | 5.89% | 6.01% | 5.93% |
Source: Moneyfactscompare.co.uk. Average rates shown are as at the first available day of the month | |||
How weak US jobs data also brought UK mortgage rates down
Nevertheless, mortgage lenders have been reducing fixed rates after the MPC’s vote to lower the base rate, despite the decision already having been priced in.
Rates went down quite quickly following the BoE’s cut, says Stimson, but he adds this was more a result of US jobs data that was published on August 2.
Total nonfarm payroll employment edged up by 114,000 in July, below the consensus forecast of 175,000, while the unemployment rate rose by 0.2 percentage points to 4.3 per cent, contributing to concerns about a potential US recession.
“Swap rates have rebounded slightly,” says Stimson. “How much rates ultimately come down is really going to depend on where inflation goes over the next few months, and really what happens on a global level.
“It's only if events that aren't really anticipated start occurring that we're going to start seeing probably more significant cuts in fixed rates. Several rate cuts over the next two years have already been priced into the curve, and the same on the five-year curve.”
Duncombe at Accord Mortgages agrees that “pessimistic” data from the US that contributed to concerns about a potential US recession drove swap rates down more than the base rate cut.
“We saw the stock market drop; we heard talk of a US recession. Swap rates came down quite drastically.
“And that's what you're seeing play out in lenders starting to cut their rates, because on the five-year funding swaps have dropped well below 4 per cent. So you're seeing fixed rates come in at well below 4 per cent, even though the base rate is still at 5 per cent.
“What has happened from the context of [August 6] is that swaps have gone back up by about six basis points, because people are thinking, ‘Actually, we probably overreacted, and we need to come back a little bit.’
“And you saw that a couple of weeks ago when swaps went up by six basis points in a day, because the government had talked about giving nurses a 5.5 per cent pay rise when inflation is at 2 per cent. There's lots of things that can impact fixed rate pricing outside base rates.”
How far could mortgage rates continue to fall?
With future base rate cuts already priced into the swap curve, Stimson says: “Don't expect that the next time as and when the base rate gets cut, that cut’s immediately going to be reflected in pricing, because it won't necessarily be the case.”
When it comes to fixed mortgage rates, Nationwide chief economist Robert Gardner likewise says they depend on what happens to movements in longer-term interest rates, which is mostly determined by expectations around the base rate in the future.
