The data revealed that during the three months to November the biggest autumn price cut on record for these products was recorded as average two year tracker rates dropped by 28 basis points (bps).
Over the last year, two year tracker rates have dropped by more than half a percent to reach a new post-2007 low of 2.38%.
Average two year fixed rates fell 27bps in the three months to November – the biggest autumn price drop since 2008 – to a record low of 3.44%. Three year rates also reached a historic low of 3.52% having dropped 27bps since August: the biggest autumn discount since 2012 under the Funding for Lending Scheme (FLS).
Five year fixed rates also fell from August to November, but at 3.96%, they remain 10bps higher than in November 2013 and 13bps higher than the post-2007 low of 3.83% set in August 2013.
Fixed rate products remain the most popular choice for borrowers, but with two year tracker rates falling further than two, three or five year fixed rates over the last year, there has been a slight shift in borrower behaviour.
November 2014 saw 92% of homebuyers applying for fixed rate products compared with 94% a year earlier, while 87% of remortgaging homeowners opted to fix compared with 93% in November 2013.
Reduced rates save hundreds in mortgage repayment costs
Falling rates are resulting in significant monthly savings for consumers. Buyers who opted for the average three year fix in November will save £144 a year on repayments during their fixed period compared with October’s average rate.
Those with a five year fix or two year tracker rate will pay £120 a year less towards their mortgage, while consumers with a two year fix will save £72 annually.
The savings are even more significant compared with November 2013, with the annual cost of a two year tracker having dropped by almost £500 (£492). Borrowers who took out the average three year fix in November 2014 will save £372 a year compared with those who did the same in November 2013.
Only those taking out a five year fix in November 2014 will pay a higher rate and face higher repayments than they would have done a year earlier.
Brian Murphy, head of lending at Mortgage Advice Bureau, comments:
“Fierce competition between lenders has led to an all-out mortgage rate war, with two year fixed, two year tracker and three year fixed rates all at record lows. This is resulting in tangible monthly savings for consumers, particularly compared to this time last year. There may be room for further discounts, but as we edge closer to an interest rate rise – currently expected in autumn 2015 – it’s likely that we will soon hit the bottom of the curve. Consumers playing the waiting game could therefore risk losing out on the most competitive deals.
Fixed rates remain the product of choice among most consumers and are likely to become even more popular as the Bank Rate rise approaches. The typical borrower generally prefers to pay a slightly higher premium for greater long term security.”
Competitive rates set to save consumers more than stamp duty changes
Recent changes to stamp duty in the Autumn Statement are also set to save consumers a significant amount in housing costs, yet Mortgage Advice Bureau’s analysis shows that recent rate reductions will have a bigger impact over the product’s fixed term.
Based on November’s average purchase price of £227,619, a buyer would pay £2,276 in stamp duty under the old system and will now pay £2,052: a saving of £224.
However, the price drop from October to November will save the typical borrower £463 in repayments over the initial term of a three year fixed rate. For five year fixed rates, the saving adds up to £632 while for two year trackers the saving is £249.
Only borrowers opting for a two year fixed rate would benefit more from stamp duty changes than from falling rates.
Brian Murphy explains:
“The recent changes to stamp duty are undoubtedly a coup for the majority of would-be owners, making significant reductions to the cost of buying a home. However, perhaps without realising, many have already been experiencing bigger savings in the form of falling mortgage rates. This emphasises the benefit of securing a competitive rate, as doing so can save hundreds of pounds in the long run. An independent mortgage broker is best positioned to review all of the options in the market, and can help guide consumers towards the most affordable and realistic product for them.”
