UK's lowest mortgage rate deal falls below 5% after interest rate pause
The lowdown on what banks are offering as the Bank of England announces hold on interest rates.
The UK’s lowest mortgage rate deal has fallen below 5% after the Bank of England (BoE) announced that interest rates will be on hold at 5.25%.
The lowest mortgage rate available within a loan-to-value (LTV) bracket has dipped below 5% for the first time since June, for 75% and 60% LTV 5-year fixed mortgages, according to Rightmove.
After 14 consecutive rate increases, the BoE’s monetary policy committee on Thursday voted to pause interest rates in order to bring down high inflation.
The announcement to pause interest rates at the current rates will mean millions of households repaying mortgages are likely to be protected from further rises for now.
Read more: Interest rates staying 'higher for longer' means at least through 2026 for the Fed
Over the past year, mortgage lenders have had to significantly increase rates in response to the rate rises.
According to the BoE, three significant shocks drove high inflation — the COVID pandemic caused people to buy more goods than services, Russia's invasion of Ukraine hiked gas and food prices and food prices surged by 17% in June compared to a year ago.
So what does all this mean for mortgage rates?
What is a mortgage?
A mortgage is an agreed loan between a borrower and a lender to facilitate the purchase of a property like a home house or flat. It can also be used to borrow money against the value of a home a person already owns.
The lender has the right to take a property away if a homeowner fails to repay the money borrowed plus interest.
There are two basic types of mortgages — interest-only mortgages and repayment mortgages.
Read more: Inflation: Milk and bread prices fall, but it still costs more to eat at a restaurant
An interest-only mortgage means monthly payments only cover the interest, making the cost lower each month but it does not reduce the overall loan. This means at the end of the mortgage term the entire loan must be repaid in full.
Most lenders now require proof of a repayment plan and a significant deposit for interest-only mortgages, except for buy-to-let mortgages.
With a repayment mortgage, each payment reduces the amount you borrowed, but initially most goes towards paying interest. Over time, the interest portion decreases as payment reduces the loan.
The best mortgage rates
When starting a search for a mortgage "never just go to your bank for a cheap deal", advises Martin Lewis's website Money Savings Expert. Instead, use mortgage brokers to scour the market for a good deal that's appropriate to you.
Potential home-buyers should also consider consulting a financial advisor for personalised guidance. An ideal mortgage rate depends on your unique financial situation and goals, so staying vigilant in the ever-evolving market is important.
Read more: UK house prices remain subdued amid high interest rates and summer holidays
URGENT SAVERS WARNING (pls share).
The Bank of England minutes ago voted to maintain interest rates at 5.25% - not increase as many predicted.
It's therefore possible fixed rate savings may shave down their rates at speed (as they're based on longer term predictions of interest…— Martin Lewis (@MartinSLewis) September 21, 2023
From working out a budget to preparing paperwork, consumer group Uswitch offers advice on whether now is the right time to apply for a mortgage, and the steps needed get a mortgage loan approved.
Here's a list of the best mortgage rates on the market according to Uswitch:
Best rates on 60% mortgages
Two-year fix initial rate
Nationwide: 5.74%
Virgin Money - 5.45% (8.9% APRC)
Coventry BS - 5.53% (7.4% APRC)
NatWest - 5.54% (7.7% APRC)
NatWest - 5.57% (7.7% APRC)
Five-year fix initial rate
Virgin Money - 4.97% (7.6% APRC)
Yorkshire Building Society - 4.99% (6.84% APRC
NatWest - 4.99% (6.8% APRC)
Coventry BS - 5% (6.6% APRC)
Best rates on 85% mortgages
Two-year fix initial rate
Virgin Money - 5.79% (9% APRC)
Yorkshire Building Society - 5.81% (7.21% APRC)
MPowered Mortgages - 5.81% (8.6% APRC)
NatWest - 5.83% (7.7% APRC)
Five-year fix initial rate
NatWest - 5.17% (6.9% APRC)
Virgin Money - 5.2% (7.7% APRC)
NatWest - 5.22% (6.9% APRC)
Yorkshire Building Society - 5.24% (6.95% APRC)
Best rates on 90% mortgages
Two-year fix initial rate
Virgin Money - 5.85% (9% APRC)
Accord - 5.96% (7.33% APRC)
Yorkshire Building Society - 5.97% (7.25% APRC)
HSBC - 5.99% (7.1% APRC)
Five-year fix initial rate
Accord - 5.38% (7.12% APRC)
NatWest - 5.39% (7% APRC)
Yorkshire Building Society - 5.4% (7.03% APRC)
HSBC - 5.41% (6.6% APRC)
Best rates on 95% mortgages
Two-year fix initial rates
Yorkshire Building Society - 6.19% (7.3% APRC)
Skipton BS - 6.39% (6.9% APRC)
Nationwide BS - 6.44% (8% APRC)
Skipton BS - 6.44% (6.8% APRC)
Five-year fix initial rates
Accord - 5.64% (7.23% APRC)
Skipton BS - 5.69% (6.6% APRC)
Yorkshire Building Society - 5.69% (7.16% APRC)
Accord - 5.73% (7.27% APRC)
Watch: How much money do I need to buy a house?
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