Mortgage rates drop to six-month low

Fixed-rate mortgage deals are at their lowest in six months, with the average five-year term now coming in below 5%.

Rates are slowly edging nearer to where they were before the government's mini-budget last September, which led to hundreds of mortgage deals being temporarily withdrawn, followed by much higher rates being introduced.

While rates have been gradually falling ever since, the downward trend has begun to calm this month. What's more, market-leading deals have been disappearing within a matter of days.

Here, we analyse what's happening to both two and five-year fixed mortgage interest rates, and how to act quickly to secure the best deals.

Mortgage rates at six-month low

Although rates are still much higher than a year ago, the average five-year rate has dipped below 5% for the first time since September. 

It currently stands at 4.96% – a far-cry from the high of 6.31% recorded just four months ago.

The average two-year fixed rate is now 0.32% higher than the average five-year equivalent, at 5.28%. You have to stretch back 15 years to reach the last time the gap between the differing fixed terms was that high.

As seen in the graph below, figures sourced from Moneyfacts show how rates have come down from their peak.

That being said, the stuttering market has resulted in very little movement in average fixed rates during March, according to Moneyfacts data.

Cheapest mortgage rates on the market

Borrowers at either end of the spectrum – with either a limited deposit or bigger lump sum – will be pleased to see that fixed rates have been reducing month-on-month. 

For those looking to get a mortgage with a deposit of 5% of the property's value (known as a 95% mortgage), the best two-year fix currently on the market is Scottish Building Society's 5.39% rate, which comes with a £995 upfront fee.

The cheapest five-year fix is Newcastle Building Society's 4.9% with a £999 fee.

Meanwhile, for those borrowing with a much bigger deposit at 60% loan-to-value, the best two-year fix on offer comes from Cumberland Building Society, at 4.29% with a £999 fee. Cumberland also offers the best five-year fix, at 3.98% with the same upfront fee.

To see all of the best deals currently on offer, head to our story on the best mortgage rates for home movers and first-time buyers. This is regularly updated as lenders continue to chop and change their offers.

• Find out more: how to find the best mortgage deal

Market-leading deals disappear

As seen above, the cheapest deals have dipped below 4%, but many aren't staying on the market for long. 

In February, Platform and the Co-operative Bank introduced the lowest rates seen for months when a 3.75% offer for 60% LTV was put on the table. However, this was then withdrawn within 48 hours.

A host of other banks and building societies have also withdrawn their cheapest deals and marginally hiked their rates – meaning that, while average rates are falling, the number of offers below 4% has thinned out.

Headline rates often have a very short shelf life, so it's not uncommon for mini price wars to break out between lenders trying to undercut each other.

'Act quickly if you find the right deal'

If you find a competitive deal you're happy with, you might want to act quickly before it disappears.

Karina Hutchins, head of mortgages at OpenMoney, recommends using an online mortgage broker to compare deals for you, and work out if the lowest interest rate really is the best option 

'They will be able to make a recommendation quickly, without having to schedule any lengthy appointments into a busy diary,' she explains. 'I also recommend sending them copies of your ID, payslips and bank statements up front, so they have everything they need to quickly submit an application.'

If you lock in a deal a number of months in advance, be sure to check the provider's terms – some will lock you into the deal, while others will let you switch if you spot a cheaper offer you'd prefer.

• Find out more: how long should I fix for?

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Will mortgage rates increase in the coming weeks?

With the cheapest rates stagnating, and even creeping up in recent weeks, there have been fears we've come to the end of the line in terms of consecutive monthly price drops.

The Bank of England base rate is also expected to rise, however, experts don't have a bleak outlook for the immediate future. 

David Hollingworth, of L&C Mortgages, said: 'It looked like fixed-rate pricing had bottomed out, and at one point it looked as though rates could even edge back over that 4% barrier. 

'Thankfully, lender appetite has prevented that and we could now be looking at improvements. The instability and anxiety around the recent failure of banks in the US and the buyout of Credit Suisse are leading to market expectation that rates won't climb as high as previously anticipated.'

Karina Hutchins added: 'Although some smaller lenders like Platform are withdrawing their sub-4% rates, larger lenders continue to offer these deals as they have a bigger appetite for risk. For example, this week, Santander reduced its rates and released a new five-year fix at 3.99%.'

Trying to second-guess the mortgage market is a tough game and, without a crystal ball, experts with decades' worth of experience cannot foresee where rates will end up next.

• Find out more: Bank of England base rate and your mortgage