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Mortgage rates on five-year fixes tip below 6 per cent

Mortgage rates on five-year fixed deals have dipped below 6 per cent for the first time in nearly two months, in a sign the UK’s home loan market is stabilising following the government’s ill-fated “mini” Budget.

The average rate on a five-year fixed-rate mortgage fell to 5.95 per cent on Tuesday, the lowest level since early October, according to data provider Moneyfacts.

The latest drop is a reprieve for borrowers after rates last month shot up to their highest level since the financial crisis. The government’s fiscal statement on September 23 sent gilt yields soaring, forcing many lenders to withdraw fixed-rate deals for new customers and reinstate them with higher rates.

“Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement,” said Rachel Springall, a financial expert at Moneyfacts.

The average rate on two-year mortgages also fell to 6.13 per cent on Tuesday, down from 6.65 per cent in late October.

Nationwide was among the lenders improving terms. The UK’s largest building society said it will reduce rates on a range of fixed and tracker deals on Wednesday by up to 0.3 percentage points, including first-time buyer mortgages with a 95 per cent loan-to-value.

HSBC will reduce rates on Thursday across residential and buy-to-let mortgages. Coventry Building Society said it has cut rates on residential home loans by 0.15 percentage points and reduced rates for all five-year fixed deals for landlords at 65 per cent LTV.

Ray Boulger, a broker at John Charcol, said: “What’s more relevant is that five-year deals have dropped below 5 per cent in some cases.”

Aaron Strutt, a mortgage broker at Trinity Financial, said 5 per cent “is still hugely more expensive than the deals we’ve been used to”.

“The cost of funding has come down and we are expecting cheaper fixed rates over the coming months,” he added. “If the property market continues to slow, the lenders normally act and this is typically in the form of cheaper rates and more relaxed acceptance criteria.”

The Office for Budget Responsibility said last week that house prices are forecast to fall by 9 per cent over the next two years and would remain below their current level over the next five years.

Demand for UK housing dropped in October at the fastest pace since the start of the pandemic, representing one of the sharpest falls in more than two decades, according to the Royal Institution of Chartered Surveyors.

Simon Gammon, managing partner at broker Knight Frank Finance, said fixed rates could fall further, but were unlikely to drop to 1 or 2 per cent, the range of rates widely available a year ago. “This is perhaps the new normal,” he added. “People will have to get used to it.”

Many borrowers will also struggle to afford higher rates. The government said last week in the Autumn Statement that it will extend its “support for mortgage interest” scheme from the spring, helping struggling homeowners on benefits to make interest payments.

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