Fixed rate mortgages have fallen by an average of 2.5% since 2010, according to research by Legal & General Mortgage Club.
Average monthly fixed rates have fallen by 2.23% for two-year fixed mortgages. By comparison, rates on five-year fixed loans have also seen a consistent decrease, falling close to 3% despite the base rate remaining at 0.5% since 2009.
Analysis of the data finds that rates fell on average 0.4% every year, as the UK continued to see a record low base rate of 0.5%. L&G said that the downward trajectory of rates did experience a number of reversals however. These variations largely corresponded with wider market turbulence, such as banks’ stress testing issues in early 2012, which affected lenders’ capital and the availability of funds, and resulted in two-year rates rising from 2.92% in September 2011 to 3.74% in June 2012 corresponding with stress.
The results also show a marked fall in fixed rates in the run-up to June’s EU referendum, with speculation that the Bank of England would opt to reduce the base interest rate following the result. Average two-year fixed rates fell from 1.88% to 1.74% in this period, whilst five-year fixed rates saw a fall from 2.71% to 2.57%. These reductions indicate that lenders had already begun to price in a potential reduction in their mortgage rates well before the Bank of England’s decision, L&G said.
Jeremy Duncombe, director at Legal & General Mortgage Club, said: “It’s clear from these results that the Bank of England’s base rate is not the defining factor in deciding mortgage interest rates. There has been a consistent and a substantial fluctuation in fixed rates since the 2009 decision to bring the base rate to an historic low level of 0.5%. Instead, it’s external factors, including availability of capital and the strength of the economy that play a significant role in fixed rates.
“For all the speculation about the impact of an impending base rate cut, these figures clearly show that lenders have already priced in a rate reduction on their two-year and five-year fixed rate mortgages. It’s therefore unlikely that a reduction in interest rates by the Bank of England will see a further significant fall in mortgage rates.
“Even if base rate is cut, there is no guarantee that SVRs would also fall , so now remains a great time for borrowers to consider their options, particularly if they are coming to the end of their mortgage term. To get the best deal, borrowers should speak with an adviser, as this will give them the best chance of securing a favourable deal on a mortgage that suits their circumstances.”