Average two-year mortgage rate dips below 6% for first time in nearly six months

The average two-year fixed-rate homeowner mortgage is sitting below 6% for the first time in nearly six months.

Across all deposit sizes, the average two-year fixed-rate homeowner mortgage on the market dipped to 5.99% on Friday, falling from 6.01% on Thursday, according to Moneyfactscompare.co.uk.

The last time this rate was below 6% was on June 16, when it was 5.98%.

The peak for two-year fixed products this year was reached on July 26, when the average rate hit 6.86%.

Lenders have been chopping their fixed rates amid signs that inflation is easing.

James Hyde, spokesperson at Moneyfactscompare.co.uk,  said: “The average two-year fixed rate has dipped below 6%, for the first time since mid-June this year.

“Having peaked at 6.86% in late July, rates have been gently falling since early August due a combination of factors including falling inflation, base rate pauses, and reductions in swap rates (which lenders use to price fixed-rate mortgages).

“In recent weeks, a number of lenders have again begun to offer sub-5% two-year fixed deals; with lowest rates available UK-wide sitting around 4.75% at present.

“It remains to be seen if the recent rate reductions will continue, as any further rises in inflation, base rate, or swap rates may lead to a reversal.”

The average five-year fixed homeowner mortgage rate on the market eased downwards to 5.60% on Friday, from an average rate of 5.61% on Thursday.

Moneyfacts also counted 5,766 homeowner mortgage products available, up from 5,764 on Thursday.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “This could help bring a chunk of buyers back to the market. It would be balm for the agony suffered by sellers over the past few months, as their properties sit unseen on the market and their for-sale signs collect grime. However, we can’t expect to see the impact in house price figures until the spring.

“Mortgage rates have had a torrid year. They shot sky-high in the aftermath of the mini-budget at the end of 2022, so spent the first few months of the year gradually dropping back. This slowed as inflation’s downwards path proved bumpy, and then reversed, climbing gradually from late April.

“In May, when April’s inflation data revealed core inflation had risen, they rose more quickly, and in June, when May’s inflation rate didn’t move at all, they continued their rapid ascent.”

Ms Coles said the rapid rise in mortgage rates had put the brakes on mortgage approvals.

She added: “There’s a good chance that the 6% threshold could be psychologically important for a number of buyers, who decide it’s a good time to take the plunge.

“It’s not going to be a seismic shift. Given that rates are expected to fall further from here – and that drops will accelerate once rate cuts are on the cards, there are plenty who will decide to wait and see. However, in a property market this sluggish, an influx of new buyers will provide some welcome relief for those who have had their home on the market for months without interest.”