mortgages

Mortgage rates have fallen to rock-bottom rates, with the battle to get to the top of the best-buy tables resulting in increased competition between lenders.

The number-crunchers at data providers Moneyfacts have calculated that the average rates on fixed and tracker mortgages are the lowest they have been since Moneyfacts started monitoring the market in 1988.

The changes over recent months mean the average two-year fixed-rate deal now stands at 4.32pc, with three and five-year deals at averages of 4.92pc and 5.29pc respectively. Meanwhile, the average two-year tracker deal currently charges 3.37pc.

“Lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers as previously cuts were being applied only to the lower LTV bands,” said Moneyfacts spokesman Michelle Slade.

Recent research by Lloyds TSB found that a growing number of people were opting to sit tight with their existing deals because they thought the Bank of England would keep the base rate at its record low of 0.5pc until next year. In other words, more borrowers are sticking on low variable rates and not switching to fixed rates until they think a base-rate rise is more likely.

It’s possible that the subsequent fall in demand for fixed deals is another reason for the fall in average rates.

“Earlier this year, the market expected a rise in the Bank of England base rate that saw mortgage rates start to rise,” Miss Slade said.

“An imminent rise in the base rate now appears unlikely and the cost of funding on the swap rate market has reduced.

“This reduction in funding costs has led to average mortgage rates falling to their lowest level since we started recording rates in 1988.”

Despite this fall, Miss Slade said lenders were still not passing on the full fall in the cost of funding to consumers.

“The spread between the cost of funding and average mortgage rates now stands at its highest level since December 2010,” she said.

“Lenders are always slower at bringing rates down than they are at raising them, and as soon as the market expects a base rate rise, mortgage rates will start to increase again.”