Average two and five year mortgages below 5% for first time since 2023 | Money News

The average five year mortgage rate has fallen below 5% for the first time in more than two years.

The interest rate charged on a typical five-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.

 

This is a low not seen since 3 May 2023, just a week before the interest-rate setters at the Bank of England raised their base rate to 4.5%. The current rate has been lowered to 4% in recent weeks.

The base reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers, and despite inflation forecast to rise further.

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The mortgage drop on Thursday came despite the high inflation reading for July, which muddied the path for further interest rate cuts.

Economists are divided about whether a final reduction will be made this year, while traders anticipate no further cuts after the surprisingly high pace of inflation last month, according to London Stock Exchange Group (LSEG) data.

A reduction is not expected by those traders until February, meaning mortgage rates could remain at this level.

Interest rate expectations can influence the terms that mortgage lenders offer.

Last week, the average two-year mortgage rate also fell below 5%, for the first time since the Liz Truss mini-budget.

The mini-budget’s programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility (OBR), led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.

It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal, in the weeks after the fiscal announcement.

A typical two-year deal is now 4.97%.