According to a recent report from Rightmove, mortgages rates are lower than they were a year ago. The cheaper lender rates have come onto the lending market without a cut in the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPC). The reasoning for the lower rates is due to the optimism for inflation to reach target and the committee to vote for the first cut to the base rate since March 2020. The lower lender rates available are an opportunity for borrowers to secure deals that would likely appear when the MPC does cut the rate.

When the MPC will vote to lower the base rate is still undecided. The next meeting is this month, and two inflation reports will have been released since the last meeting. Inflation was reported in May to have declined from 3.2% to 2.3%, but not as low as the expected 2.1%. The next release of inflation data will come on 19 June with the MPC meeting scheduled for the following day on 20 June. 

A dip in inflation under the target rate might give confidence to the MPC they have tamed inflation and offer the first of what could be two rate reductions this year. The amount of a reduction for the first cut is expected to be only 0.25% and would take the base rate from the 16 year high of 5.25% to 5.0%.

If the MPC votes to hold the rate steady in June, the next opportunity for a rate cut will not occur until August as there is not a scheduled meeting for July.

Fortunately for borrowers, especially those seeking mortgages and remortgages, the rates offered by lenders are reflective of a lower base rate even though it has yet to materialize. 

According to Rightmove, mortgage rates are lower than those offered to buyers a year ago. This is the case across most of the loan to value (LTV) offers. As of 5 June, the average two-year fixed mortgage rate dropped from 5.47% in 2023 to 5.42%. The average five-year fixed rate mortgage in 2023 was 5.11% and has dropped to 5.04%. 

As LTV ratios dropped, better interest rate levels were offered as the case due to the lender taking on less risk in lending with the loan level lower in relation to the value of the property. This is normally found with both mortgages and remortgages. However, even at LTVs in the 85% to 90% ratio the offerings were attractive. For instance, at 95% LTV, the average two-year fixed rate had dropped from 6.19% last year to 6.08% this week.

Lenders are not expected to keep reducing their rates in the days to come. They are more likely to wait out the decision of the MPC rather than undo an over optimistic reduction should the MPC need to hold out in lowering the base rate.

There are those expecting the government to offer opportunities in borrowing as the general election is approaching. Such promises could help first-time buyers retain a strong presence in the housing market. 

Rightmove mortgage expert, Matt Smith, remarked, “There’s an opportunity to unlock greater affordability in a responsible way, which could help more first-time buyers get on the ladder. First-time buyers are already taking out longer mortgage terms, and lender innovation has included the introduction of longer-term fixed rates that are likely to be part of the solution as they help by ensuring certainty of payments. 

“Various mortgage schemes have played their part and supported a number of people, and we know from our research that people would like to see new schemes introduced, but we think longer-term solutions would be more effective than short-term schemes.”

Mr. Smith added, “Either way, it’s most likely that regulatory change is needed, so it’s critical that the government works with regulators and lenders from day one on any mortgage solutions, to ensure buy-in and take-up, which will in turn create more options for first-time buyers.”

Meanwhile, for hopeful home buyers and remortgage seeking homeowners, knowing there are lower rate deals already available is motivation to shop online for quotes and determine what borrowing opportunities are available now.