Good news for home buyers as mortgage rates hit 11-month low

Interest rates have fallen to their lowest levels in nearly 11 months, creating a significant shift in the property market. The average 5 year fixed rate mortgage has dipped below the 5% mark for the first time since May 2023, while the lowest rate offered by our panel of over 100 lenders sits at 3.85%*. This downward trend is more than just a number; it’s a potential turning point for housing affordability and market confidence.

For anyone who has been waiting on the sidelines, this could be the opportunity you've been hoping for. Let's get into what this means for first-time buyers, remortgagers, and home movers, and how you can navigate this changing landscape to your advantage.

What's behind the drop in mortgage rates?

The cost of borrowing has been a hot topic, influenced by economic uncertainty and the Bank of England's efforts to manage inflation. The Bank of England recently reduced its benchmark interest rate (called the base rate) to 4%, a move that signals a stabilising economic outlook - although we're not out of the woods yet when it comes to inflation.

While the Bank of England's base rate influences mortgage products, fixed-rate mortgages are also influenced by swap rates - the rates lenders pay to borrow money themselves.

Lenders are now competing more aggressively, pushing rates down. and with over 7,000 different mortgage products now available, there is more choice than ever.

However, it's important to remember that affordability remains a challenge. Even with lower rates, monthly payments are higher than they were a few years ago. This makes seeking expert guidance essential to finding the right deal for you.

How lower rates affect you

The drop in mortgage rates impacts everyone differently, depending on where they are on their property journey. Let's break down what this news means for you.

First-time buyers: A window of opportunity

For first-time buyers, lower interest rates can make the dream of homeownership feel more attainable. A lower rate translates directly to a lower monthly mortgage payment, which can make a significant difference in affordability.

A small percentage drop can save hundreds of pounds per year, freeing up cash and making it easier to pass lenders' affordability checks. This shift could be the key to getting your foot on the property ladder!

However, the flip side is that there can be increased housing demand as a result of rate drops. So if you want to buy soon, acting decisively is crucial. The first step is understanding exactly how much you can afford to borrow in this new environment. See what you could be offered without applying with a Tembo plan.

Home movers: Unlocking your next step

If you're looking to move up the property ladder, the current rate environment could provide the momentum you need. A lower interest rate on your next mortgage can help offset the higher property prices you might face when upsizing. This could make the financial leap less daunting and your desired home more accessible.

But many current homeowners are on fixed-rate deals secured when rates were much lower. The prospect of moving onto a new, higher-rate mortgage may be off-putting. But the recent rate drops help to close this gap, making a move more financially viable. It allows you to calculate your next steps with more confidence, knowing that borrowing costs are becoming more affordable.

Remortgagers: Time to secure a better deal

If your current fixed-rate deal is ending soon, this news is particularly relevant. Hundreds of thousands of homeowners are set to remortgage this year, and moving onto a lender's standard variable rate (SVR) could mean a sharp increase in your monthly payments.

Shopping around for a new deal is crucial. The fall in rates means you can likely lock in a new fixed rate that is significantly lower than the SVR and potentially better than deals available just a few months ago. Securing a new fixed-rate mortgage can also provide financial stability and peace of mind for the next two to five years. Don't wait until the last minute; start exploring your options three to six months before your current deal expires! Discover your options with a Tembo plan.

How Tembo can help you navigate the market

While falling rates are positive, the mortgage market remains complex. Average rates can be misleading, and the best deals are often reserved for those with large deposits or significant equity. This is where expert guidance becomes invaluable.

At Tembo, we specialise in helping buyers and remortgagers find tailored solutions to navigate these challenges. We understand that every buyer's situation is unique, going beyond headline offers to uncover deals you might not find on your own. With our smart tech and award-winning team working together, we are able to boost our customers' budgets by an average of £88,000!