Mortgage rates fall to record lows, ahead of rate cut

Mortgage rates are continuing to creep downwards, as the City bets on a cut in interest rates next week.

A 10-year fixed rate to be launched by the Coventry Building Society on Friday is thought to be the cheapest such deal on record.

Barclays, HSBC, Metro Bank, the Leeds and the West Bromwich Building Society are among other lenders who have cut rates since the EU referendum.

Economists think there is a 78% chance of a cut in base rates next Thursday.

"These are the kind of rates that borrowers couldn't have dreamt of getting even two years ago," said Ray Boulger of John Charcol.


The 10-year fix from the Coventry will cost borrowers 2.39%, but to get that rate, homeowners will only be able to borrow half the value of the property.

In other words, the deal has a 50% loan-to-value ratio.

Many of the rate reductions have been very small. The average five-year fixed rate, for example, has come down from 3.14% before the EU vote to 3.13% currently.

The average rate for 10-year fixes has actually risen, because of new products being offered and different loan-to-value ratios.

Average fixed mortgage rates
Mortgage productRate on 23 JuneRate on 6 July
Two-year fix 2.57% 2.55%
Five-year fix 3.14% 3.13%
10-year fix 3.46% 3.52%
source: Moneyfacts    

Further falls?

Following remarks by the governor of the Bank of England, Mark Carney, the City believes there is a 78% chance of a base rate cut next week, and an 86% chance of a cut by August, according to economists at Hargreaves Lansdown.

If there is a cut, borrowers on tracker rates will benefit, but experts are divided on whether fixed rates will fall any further.

"The link between base rates and mortgage rates is broken," said Charlotte Nelson, financial expert at Moneyfacts.

"It's likely we may see more cuts, but lenders will wait and see what other lenders do."

Others suggest that banks - which have increased their mortgage lending significantly - may be reluctant to reduce rates further.

Lower interest rates tend to squeeze bank profits, which is one reason that bank shares have fallen significantly since the referendum result.

"They may even be keen to sustain current rates, or increase pricing in order to regain recent months' lost margins," said David Whittaker, managing director of Mortgages for Business.