According to the Bank of England, there has never been a better time to be looking to borrow for a home loan. In fact, the interest rates offered on savings accounts at the moment, which themselves are low, are still greater than the rates offered on the best fixed-rate mortgages.
The figures released today show that the average two-year fixed rate for a mortgage where the borrower needs to put down a 25% deposit is at 2.01%. This is a drastic reduction from the 3.11% it was in January 2013. Furthermore, with a 25% deposit, the average five-year fixed rate mortgage is at an extremely low 3.09%.
It is customary for mortgages to have a higher rate of interest than a savings accounts because banks tend to use the money gained through savings accounts to fund their mortgage lending. However, the prevalence of cheap funding, alongside low inflation and the plummet of oil prices worldwide has resulted in banks keeping interest rates on mortgages extremely low.
Rachel Springfall, an expert in the industry, stated: “The main driving force behind these record low rates is the Funding for Lending Scheme- this pushed the cost of mortgages down and also increased the range of deals on offer as lenders rushed to lend out to prospective borrowers.”
She went on to argue: “The lenders who took part in the FLS borrowed cheaply from the government and relied less on their savings balance sheets to fund the cost of mortgages, which is why savings rates are so poor today. These institutions must lend the money out and the quickest way to get new customers is by offering enticing low mortgage rates, it is also important for them to retain customers who may be looking elsewhere.”
It is necessary to stress that mortgage rates are at such a low that up to 25 of the lowest fixed-rate loans are less than the best easy savings account- this is at Kent Reliance who offer interest rates of 1.5%. A pertinent example is that of HSBC who have just introduced a two-year fixed rate of only 1.19%. Moreover, the Chelsea Building Society are offering an extremely competitive five-year fixed rate at just 2.19%.
Furthermore, the landlord loans are priced around 3.5% which is significantly lower than even half a year ago. Experts are pointing out that with prices for renting in the UK relatively stabilised and in some places growing, it is an opportune time to get into the market.