Since Prudential Regulation Authority (PRA) CEO Sam Woods warned that the Bank of England (BoE) is watching mortgage rates “like a hawk”, wholesale cuts to the average two-year fixed rate have dwindled and the average rate has started to instead increase, rising from 2.47 per cent in May to 2.5 per cent in July.
However, the overall average two-year fixed mortgage rate fell by 0.06 per cent from 2.53 per cent in August 2018 to 2.47 per cent in May 2019, after the BoE had increased its base rate from 0.5 per cent to 0.75 per cent, according to research from Moneyfacts.co.uk.
Commenting, Moneyfacts.co.uk finance expert Darren Cook said: “It is clear the warning by the PRA in May that the BoE is watching mortgage rates ‘like a hawk’ seems to have fulfilled the central bank’s possible intention to slow down mortgage rate cuts. Average mortgage rates had been steadily declining for some time, especially rates at higher LTV tiers, and prudent interference may have been a necessary intervention.”
The largest cuts to two-year fixed rates took place at the maximum 95 per cent loan-to-value (LTV) tier, where the average rate fell by 0.7 per cent from 3.95 per cent in August 2018 to 3.25 per cent in June 2019, where it has remained for the last two months.
Cook noted “it seems clear” that mortgage providers have been cutting risk margins to “retain a competitive edge”, with the average two-year fixed rate at maximum 60 per cent LTV increasing from 1.89 per cent to 1.9 per cent since August 2018.
“However, it seems that this is possibly the end of widespread mortgage interest rate cuts due to competition for the time being, and we may only expect marginal changes until wholesale funding costs dictate differently. In fact, the only tier to see the average two-year fixed rate fall since May is the 65 per cent LTV tier, perhaps suggesting providers are now focusing their attention at the less risky end of the sector,” he added.
The Moneyfacts.co.uk finance expert highlighted that, despite the cutes at higher LTV tiers, potential first-time buyers (FTBs) are still, on average, receiving a better mortgage offer than what was available before the rate rise.
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