UK two-year mortgage rate falls below 6% in fresh sign of relief for house prices

THE cost of a two-year fixed-rate mortgage has fallen below 6 per cent for the first time in almost nine weeks, as the UK’s home loans crunch eases off.

The average two-year fixed-rate mortgage fell to 5.99 per cent on Monday (Dec 5), according to Moneyfacts Group. That’s the first time it has dropped below the threshold since Oct 4 when key home loan rates were spiralling in the aftermath of then-Prime Minister Liz Truss’s mini-budget. The average five-year fixed-rate deal also fell to 5.78 per cent, after dropping below 6 per cent almost a fortnight ago.

It’s the latest sign of stabilisation in the UK mortgage market, with banks relaxing some repayment terms and distressed asset investors hunting for opportunities.

Still, declining rates are only slightly relieving the cost burden for unlucky homeowners or first-time buyers. With rates at 6 per cent, a two-year mortgage will cost about £10,000 (S$16,541.3) more during the fixed period than the same product issued last December, when rates were about 2.34 per cent, according to Moneyfacts. That’s based on a mortgage of £200,000 borrowed for 25 years.

The Office for Budget Responsibility said last month that mortgage rates will stay close to 5 per cent for the next five years as the era of cheap money comes to an end. Homeowners’ average loan rates will rise steadily before peaking in the second half of 2024, according to its latest forecasts.

That’s discouraging many renters from seeking to own a home of their own. A survey conducted for insurance company Aviva indicates that as many as a million potential buyers under 45 have ruled themselves out of the first-time buyer market. BLOOMBERG