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Mortgage rates crash before Brexit: here’s how to get the cheapest deal

Small-deposit mortgages 1% cheaper since EU referendum

Mortgage rates have dropped significantly since the EU referendum in 2016, with deals for buyers with 5-10% deposits leading the charge.

The best introductory rates on some 90% and 95% mortgages have fallen by more than 1%, as lenders and borrowers increasingly look to tempt first-time buyers with longer-term deals.

Here, we explain what’s happened to the mortgage market since the Brexit vote and offer advice on how you can lock in a great deal before Britain leaves the EU at the end of October.


The mortgage market since Brexit

In the 38 months that have passed since the EU referendum, both two and five-year fixed-rate mortgages have dropped in cost, which is great for buyers and homeowners looking to remortgage.

The average rate on a two-year deal has fallen from 2.58% to 2.47%, while five-year fixes have dropped by a larger margin, from 3.16% to 2.8%.

Despite house prices stagnating and fewer people moving home, high numbers of mortgages are still being approved.

Data from the trade body UK Finance shows that 30,720 loans were granted to first-time buyers in May, up 0.5% year-on-year, while home movers were granted 29,430 loans, down 1.2% on last year’s figure.

Brexit vote three years on: mortgage rates crash

Of course, average rates only tell us a small part of the story. We’ve analysed the cheapest introductory rates on two, five and 10-year fixes, and found that borrowers can get a better deal as the clock ticks down to Brexit.

Two-year fixed rate

Two-year fixes are the most commonly available mortgage, but post-referendum rate trends have differed depending on LTV (loan-to-value ratio, which is the proportion of the property price being borrowed).

Borrowers with bigger deposits of 25-40% will now find that the cheapest rates are marginally more expensive than they were three years ago.

Whether this is really down to Brexit, though, is open to debate.

With their margins squeezed, some lenders have abandoned the rate war at 60-75% LTV in the past 12 months, and have instead focused their attentions on longer-term and low-deposit deals.

This is borne out by the 0.7% drop in best rates available on a 95% two-year fix, with Newcastle now offering a loan at just 2.59%.

One word of caution, however. While rates on 95% mortgages are very attractive, borrowers can still make a saving of 0.8% if they can instead stump up a 10% deposit.

Loan-to-value (LTV) June 2016 August 2019 Difference
60% 1.14% (Yorkshire Building Society) 1.28% (NatWest) +0.14%
75% 1.33% (Post Office) 1.45% (Barclays) +0.12%
90% 1.99% (HSBC) 1.79% (Yorkshire Building Society) -0.2%
95% 3.29% (Nottingham Building Society) 2.59% (Newcastle Building Society) -0.7%


Five-year fixed rate

We’ve written a lot about how popular five-year fixes have become, with the gap in cost between two and five-year deals halving from around 1% to 0.5% in the past three years.

This change can at least partly be attributed to Brexit, with homeowners and remortgagers flocking to lock in low rates for longer during a time of economic uncertainty.

Chart-topping five-year rates have fallen across the board since the Brexit vote, with even the squeezed 75% LTV market seeing a fall of 0.5%.

Again, the biggest change has been in the 95% market, with lenders now offering rates below 3%.

Loan-to-value (LTV) June 2016 August 2019 Difference
60% 1.99% (HSBC) 1.7% (Barclays) -0.29%
75% 2.23% (Post Office) 1.74% (Barclays) -0.49%
90% 2.93% (Norwich and Peterborough Building Society) 2.21% (Yorkshire Building Society) -0.7%
95% 3.97% (Saffron Building Society) 2.9% (Newcastle Building Society) -1.07%


10-year fixed rate

On the theme of longer fixes becoming more popular, the number of deals with decade-long introductory terms has now hit its highest level since Moneyfacts’ records began in 2007.

Back in 2016, you might have seen a few dozen deals kicking around, but that figure now stands at 157.

This rise in 10-year deals comes down to two things: borrowers looking for rate certainty and lenders struggling to make a profit on shorter-term fixes.

This area is developing all the time. Earlier this week, Newcastle Building Society launched a market-leading 10-year 90% mortgage at just 2.89%. This followed hot on the heels of Virgin Money launching a suite of new mortgages with initial terms of up to 15 years.

The Newcastle deal means borrowers can now get a 90% mortgage at a rate 1.3% lower than in June 2016.

But despite this boom, there’s still a lack of competition for borrowers with a 5% deposit who are looking to fix for 10 years. With rates starting at 4.39%, those seeking a 95% mortgage may be better choosing a two or five-year deal.

Loan-to-value (LTV) June 2016 August 2019 Difference
60% 2.89% (TSB) 2.29% (TSB) -0.6%
75% 3.04% (TSB) 2.37% (Yorkshire Building Society) -0.69%
90% 4.19% (TSB) 2.89% (Newcastle Building Society) -1.3%
95% 5.24% (TSB) 4.39% (Virgin Money) -0.86%

What’s going to happen to mortgage rates?

With Brexit still very much up in the air, all we can do is speculate about what might happen next.

Right now, there’s talk that a drop in the Bank of England base rate might be on the horizon, and lenders are already pricing this into their calculations, with Swap rates (the interest rates paid by banks when borrowing money from each other) falling significantly in the past month.

It’s only in the last couple of weeks that we’ve started to see rates drop after very little movement over the past six months.

In the first two weeks of August, the average two-year rate fell by 0.02% and the average five-year rate by 0.04%. While this might sound insignificant, these drops are the largest seen since the start of the year.

Mortgage rates for first-time buyers

As we’ve discussed, it’s been a good year for first-time buyers with small deposits to get an attractive mortgage rate, but there could be more to come.

That’s because lenders are increasingly looking at new options for first-time buyers. Virgin Money’s move to offer 15-year fixes at up to 95% LTV may mark the start of greater innovation in this area, especially given the smaller profits on offer at lower LTV levels.

As well as reductions in 95% mortgage rates, we may see more longer-term fixes at lower rates, more innovative profession-specific mortgages and more guarantor mortgage options launch over the next year.

Remortgaging: when to switch

If you’re approaching the end of your introductory period, you can usually lock in a new mortgage six months in advance.

It can take a number of weeks to remortgage, so the earlier you start this process the better.

With such great competition between lenders, it’s worth chatting to your current bank first to inform it that you’ll be looking to switch at the end of your deal period.

While there’s no guarantee it will offer the best rate, it may try to tempt you with a better deal to keep your custom.

If you’re looking to remortgage but aren’t sure where to start, you could take advice from a whole-of-market mortgage broker, who can assess the market and find you the right deal.

Comparing mortgages: five tips

  1. Beware of high fees: the best rates often come with high upfront fees of £1,000 or more, so weigh up whether a better rate really means a better overall deal.
  2. Don’t be drawn in by cashback: cashback can be nice to have, but it’s far less important than the rate, fees and terms such as early repayment charges (see below).
  3. If you’re unsure, be flexible: 10-year fixes are competitively priced, but if you’re unsure about your future plans (eg whether you’re likely to move house) it’s best to stick to a shorter-term fix to give you the option to switch again in a couple of years.
  4. Watch out for early repayment charges: five and 10-year deals usually have high early repayment charges, which can run to thousands of pounds. Before fixing for a long time, ensure the mortgage can be ported without penalties should you want to move home.
  5. If in doubt, fix: tracker mortgages can be very attractive when the base rate is low, but some of the best deals have collars that prevent them getting any cheaper. If the base rate rises, so too will your repayments, so do your research before rushing in.
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