Lenders’ efforts to attract first-time buyers mean two-year mortgage rates fall

The rates which mortgage lenders are offering on two-year fixed deals have tumbled since last August – driven by intense competition to woo first-time buyers, analysis has found.

This is despite the Bank of England base rate having increased from 0.5% to 0.75% in August 2018.

Across the market, the average two-year fixed mortgage rate has fallen by 0.04 percentage points from 2.53% in August 2018 to 2.49% now, Moneyfacts.co.uk found.

Among the two-year fixed-rate deals that have a fee attached, the average sum charged has also fallen – from £1,105 in August 2018 to £1,029.

Moneyfacts suggested that strong competition from lenders to attract first-time buyers – who are seen as the “lifeblood” of the mortgage and property market – has pushed the overall rates on offer on two-year fixes down.

It found that, for borrowers with deposits of 20% to 30%, two-year fixed mortgage rates have typically increased since last August.

But for borrowers with deposits of between 5% to 15% – who are often first-time buyers – overall rates on two-year deals have decreased over the same period.

People with a 5% deposit looking for a two-year fixed mortgage rate will find the typical rate on the market has seen a significant 0.54 percentage point fall since last August – from 3.95% to 3.41%.

Darren Cook, a finance expert at Moneyfacts.co.uk, described the rate falls as “fantastic news for prospective first-time buyers looking to get their foot on the property ladder”.

He continued: “There clearly seems to be a concerted drive by mortgage providers to try and secure the business of potential first-time buyers, who are the lifeblood of the mortgage and property markets and it is encouraging to see rates decrease as a result of some healthy competition.”

Building societies in particular appear to be focusing attention on attracting borrowers with smaller deposits, he said.

He said 37% of two-year fixed products at maximum 95% LTV (loan-to-value) are available through building societies, compared with just 16% of all available products at the 60% LTV tier.

He said that despite increased competition generally around lower deposit loans, there are “clear affordability measures” that mortgage providers must follow.

Mr Cook said: “Potential first-time buyers will still need to jump through several affordability hoops before they will find themselves on the first rung of the property ladder.”