What's Happening?
The average two-year mortgage rate in the UK has dropped below 5% for the first time since the mini-budget introduced by former Prime Minister Liz Truss in September 2022. The rate now stands at 4.99%, marking a symbolic turning point for homebuyers and indicating increased competition among lenders. Despite five interest rate cuts since last August, the Bank of England's recent meeting revealed a split vote among policymakers, raising uncertainty about future rate reductions. The mortgage market remains highly competitive, with lenders offering rates as low as 3.7%. However, the future remains uncertain, as 900,000 fixed-rate deals are set to expire in the second half of 2025.
Why It's Important?
The decline in mortgage rates below 5% is significant for the UK housing market, offering potential relief to homebuyers amid ongoing economic challenges. The competitive lending environment may benefit borrowers seeking favorable terms, but the uncertainty surrounding future interest rate cuts poses risks. The expiration of numerous fixed-rate deals could lead to increased refinancing activity, impacting both lenders and borrowers. The broader economic context includes the effects of past policy decisions, such as the mini-budget, and ongoing inflationary pressures exacerbated by global events like the energy price shocks following Russia's invasion of Ukraine.
