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Fixed-rate mortgages set to fall further to two and a half percent

Written by : News | Tue 09th Dec 2014

Fixed-rate mortgages are heading towards their lowest ever levels in the wake of dramatic falls in the stock market that have pushed down the price of borrowing to record lows.

Five-year fixed-rate deals have fallen to a low of 2.59% already and are expected to smash through the all-time low of 2.48%, said mortgage expert Ray Boulger of brokers John Charcol.

“Accord announced a market leading five-year fix of 2.59% at the end of last week, but this is unlikely to remain the lowest rate for long. In fact I think there is a strong chance we will soon see some five-year fixes challenging the previous lowest ever five-year fix of 2.48%, which was available nearly two years ago,” said Boulger.

One of Britain’s biggest lenders is preparing to launch a headline-grabbing record-low rate mortgage this Monday. Over the past week, other lenders such as Nationwide, Halifax and Leeds building society have all cut rates, with many more lenders expected to follow.

Mortgage brokers are now predicting that rates of less than 2% will become the norm in the months ahead as lenders engage in a price war that looks set to intensify in the run-up to Christmas.

Behind the cuts are falls in the “swap rates” that lenders use to price their mortgages. Swap rates are themselves related to the yields on government bonds, which have fallen steeply in the last few days.

“The main beneficiary, from an investment perspective, of the rapid mood change of the global economic situation and the consequent sell off in equities, particularly yesterday, has been money piling into government bonds, pushing yields down. Following a steady decline in yields over the last few days the market surpassed itself yesterday with the largest single day fall for a long time,” said Boulger.

Over the past month, the yield on the five year gilt has fallen by 0.57% to 1.23%, while ten-year yields are down to 1.95%.

But the fall in yields spells more misery for savers, with virtually no prospect of an improvement in interest rates for some time to come. Rates on Isa deposit accounts are now down to around 1.5%, with further falls now expected.

Falling gilt yields also translate into lower annuity rates. But the removal of requirements to buy an annuity at the last budget has saved many pensioners from locking into a poor annuity income for the rest of their lives.


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