Five-year mortgages drop back below 6%

Average rates for five-year fixed-rate mortgages have fallen below 6% for the first time in over six weeks, in the latest sign of growing stabilisation in the mortgage market following the turmoil sparked by the mini budget.

The latest data from website Moneyfacts.co.uk show the average rate for a five-year fix has now dropped to 5.95%, down from a high of 6.51% reached in late October on the day of the announcement of the resignation of Liz Truss as prime minister.

However, the data show the average cost of a two-year fixed rate mortgage remains, at 6.13%, well above 6%, and the cost of both two- and five-year fixed rate mortgage continue to be well over a whole percentage point higher than they were on the day the mini budget was announced.

The news will be welcomed by housebuilders, which have seen a huge drop-off in sales in the wake of the mini budget statement as mortgage rates soared, pushing up the cost of borrowing particularly for first time buyers with big mortgages. Gleeson, which focuses on first time buyers, said last week its cancellation rate had doubled from 20% to 41% since early October, with reservation rates dropping to just 0.26 sales per site per week.

Persimmon said at the start of the month that reservations per site per week had dropped to 0.48 from 0.78, with prices down 2%, with Barratt and Bellway signalling similar falls in sales.

The reductions in mortgage rates follow strong signals from the Bank of England after the last meeting of the Monetary Policy Committee that the base rate is now unlikely to rise above 3% given the government has backtracked on the inflationary mini budget measures unveiled under the Truss regime.

The Bank is now more concerned about the current recession and the impact of high rates on consumers already suffering from the cost-of-living crisis.

The mortgage rate data came as the Office for National statistics published transaction data showing that the number of house sales held steady in October, despite the market turmoil. The seasonally adjusted figures showed a rise of 2% in transactions in October on September, with 108,480 sales.

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Lewis Shaw, founder of Teesside-based Riverside Mortgages, said: “These figures lag behind economic reality. On the front line, it’s now a very different story. The phones have stopped ringing, buyers are holding off, and with the World Cup and Christmas upon us, most people have decided to sit tight and wait until next year.”

Likewise, Joe Garner, managing director at London property developer, NewPlace, said the levelling off in mortgage rates wasn’t feeding through to sentiment. He said: “So far in the fourth quarter, demand for new build property has fallen off a cliff. Unless sellers are really motivated or have to sell, it is likely transactions will plummet as people stay put and look to ride out the storm.”