Mortgage rates fall to record low

Homeowners are being advised to consider fixing their mortgage rates now, as five-year rates fell to their lowest level in history this week – and mortgage brokers said they are unlikely to get any cheaper.

On Thursday, Chelsea Building Society – part of the Yorkshire – launched the lowest-ever five-year fixed rate at 3.39 per cent. It is available to borrowers with a deposit of 30 per cent or more, and comes with an arrangement fee of £1,495.

It follows a flurry of rate-cutting by banks and building societies, that has resulted in ten lenders now offering five-year fixed rates below 4 per cent.

Brokers are already reporting a surge in the number of borrowers looking to remortgage from their lender’s standard variable rate.

“Fixed-rates at these rock-bottom prices are viewed as too good an opportunity to miss,” said Melanie Bien of Private Finance.

Rates are not expected to fall further, though, as lenders have little scope for further cuts. Five-year swap rates – the rates that banks use when lending to each other and pricing their mortgages – have now fallen to 2.2 per cent, but lenders still need to make a profit on the rate, and repair their balance sheets.

“Five-year fixes have got so low that more people are beginning to think now is the time to fix,” said Mark Harris of Savills Private Finance. Bien agreed. ”While five-year fixes could edge slightly lower, I can’t see that significantly lower rates are possible.” she said.

Some borrowers with large mortgages are even paying hefty redemption penalties on their existing fixed-rate deals, to switch to the new rates.

“Even after paying the 2 per cent early-repayment charges and new set up fees, they recouped this outlay within two years – and they then have the benefit of a good fixed rate for a further three years,” explained Nigel Bedford of broker Largemortgageloans.com.

Other wealthy borrowers are opting to fix a proportion of a mortgage for five years, with the rest on a penalty-free tracker rate. to give more flexibility for capital overpayments. Fixed-rates typically only allow 10 per cent overpayments each year.

Two-year fixed-rates have also been cut this week. Now, the cheapest deal is 2.48 per cent from Skipton Building Society.

However, brokers warn that opting for a cheap two-year could prove risky. “It is very possible that rates in two years' time – fixed or variable – will be 4 per cent plus,” said Bedford.