The UK mortgage market is currently experiencing a real seismic shift. More than 80% of mortgage borrowers are all going to fixed-rate ties, today. Today, 15-year fixed options with interest rates below 4% are widely available from all of the major lenders. This provides significant prospective borrower relief amidst an increasingly uncertain economic horizon.
Deals under 4% mortgages are back, catching many market-watchers off guard with their rapid return. This comes after a quick stop in February. Don’t let these rates fool you as tempting as they may be — we want experts to warn borrowers about the dangers of these short-term fixed-rate options.
Rachael Hunnisett, director of mortgage distribution at April Mortgages, discussed an emerging pattern with borrowers. Many of them are excited to avoid “the roulette wheel” that accompanies short-term agreements. The average five-year fixed-rate agreement stands at 5.12% right now. The average rate for a two-year fixed is 5.21% which is just above that of its longer-term counterpart. While swap rates show little difference between two-year and five-year term length, borrowers can achieve more stable borrowing costs with the five-year or longer-term agreements.
Just this week Nationwide, the UK’s largest building society, added to the competitive remortgaging atmosphere by adding to its own offers for those choosing to remortgage. According to industry experts, approximately 800,000 fixed-rate mortgages at 3% or less will expire annually through the end of 2027. This alarming trend is forcing borrowers to do their due diligence now more than ever.
David Hollingworth of broker L&C told The Guardian that those sub-4% offers are critical now. Today, they are a central component of the mortgage products provided by the nation’s largest lenders. As a result, this trend has fueled an unprecedented rush of applications for new deals. First, borrowers are running to lock in good rates before their existing loans or swaps run out.
Aaron Strutt from broker Trinity Financial flagged an emerging trend. A surging share of borrowers are jumping into new mortgages three-plus months ahead of their previous agreements running out. His firm has begun offering home loans at seven times a borrower’s income, surpassing the limits set for many shorter-term loans.
It’s hard to underestimate how appealing these rates will be to borrowers. They might feel significant financial pressure as their rates jump after the initial two-year terms. Everyday expenses, especially associated with raising children, would be affected severely. Strutt warned that additional interest rate cuts could be on the cards this year, depending on how the market responds to US tariffs policy. He said nothing is guaranteed.
“If the base rate does come down then there is a chance fixes could get a bit cheaper but there are no guarantees.” – Aaron Strutt, from broker Trinity Financial.
Strutt further noted that “more borrowers are taking two-year fixes on the assumption rates will reduce but many may be better off taking longer term fixes for the payment security.”