Mortgage market shows signs of stabilising as product choice rises

Exceeding 5,300 at the start of September, product choice is at its highest level since February 2022.

Increased product choice, alongside falling average two and five-year fixed rates, may be an early sign of stability within the mortgage market.

The number of mortgage options available to borrowers rose month-on-month to 5,338 by the start of September, according to Moneyfacts’ data – the highest this level has been since February 2022.

Meanwhile, the average rate for a two year fixed deal fell from 6.85% at the start of August to 6.70% at the start of this month. During the same period, the average five year fixed rate dropped from 6.37% to 6.19%.

These may be indicators the mortgage market is beginning to recover after what has been a turbulent time for many borrowers. Earlier this year, some lenders withdrew selected fixed mortgages from the market amid uncertainty whether the Bank of England would continue increasing the base rate. Others priced in possible future hikes, causing average mortgage rates to rise steadily.

Despite average fixed rates falling, the average Standard Variable Rate (SVR) continued to climb. It reached 8.09% at the start of September, a new Moneyfacts record since its electronic records began in July 2007.

“Those borrowers who are about to come off a fixed rate deal or are sitting on their revert rate may now wish to explore their options to refinance,” said Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

This is because in September 2021, the average two-year fixed rate stood at 2.38%. Based on a £200,000 mortgage over 25 years, monthly mortgage payments at this rate would have been £885, according to Moneyfactscompare.co.uk calculations.

Two years later, the equivalent payment at today’s revert to rate of 8.09% would be £1,556 – a near £700 monthly increase.

With average fixed rates starting to fall and the average SVR rising, Springall explained there may be an increased appetite for locking into a fixed deal.

However, keep in mind while average fixed rates have dropped slightly, they remain at levels not seen since the years surrounding the 2007 financial crisis.

“Borrowers may wish to consider other options, such as tracker mortgages,” Springall added. She went on to highlight that seeking advice to navigate deals is essential.

Whether the mortgage market improves in the weeks to come will depend on whether swap rates fall, which may cause lenders to cut their fixed rate deals.

“As we have seen before, a volatile interest rate market can have a significant impact on lenders’ pricing strategies,” said Springall.

While some borrowers may be waiting for stability in product choice and for fixed rates to fall further before refinancing, Springall added that there are still some “attractive deals out there with incentive packages to choose from, which may be a more cost-effective choice than a low-rate fixed deal”.

Visit our charts to compare mortgage deals or consider speaking to a broker.