Lenders are taking a ‘low and slow’ approach to mortgage rate cuts

Mortgage lenders appear to be acting with caution on products despite the latest interest rate cuts.

Data from Moneyfacts shows mortgage product choice has fallen  month-on-month to 6,842 options, cancelling out the prior monthly rise of choice. 

However, choice is still up year-on-year compared with 6,657 in August 2024).

In some good news for borrowers, the average shelf-life of a mortgage product rose to 17 days, from 16 days a month ago; a year ago it was 17 days, and two years ago, it was just 13 days.

Average mortgage rates on the overall two- and five-year fixed rates are now at 5.01%, Moneyfacts said.

The average two- and five-year fixed rates were previously lower in September 2022 (4.24%) and May 2023 (4.97%) respectively. These are the last times the rates were at sub-5%.

Rachel Springall, finance expert at Moneyfacts, said:

“Lenders had mixed attitudes to pricing during July, and the churn of products resulted in a dip in choice, cancelling out the previous month’s rise.

“As it stands, lenders may well consider a more low and slow approach to making cuts over the next few weeks, because of the knife-edge base rate decision last week which led to a rise in swap rates. 

“Piling onto this, the markets could react badly to any significant decisions made in the Autumn Budget, an event which can be a blessing or a curse for future rate setting. If inflation gets out of control or economic uncertainties spike, borrowers can forget about more base rate cuts by the Bank of England this year.”

Springall added that product choice hasn’t surged as many may have hoped at high loan-to-value (LTV) bands though after the Government replaced the Mortgage Guarantee Scheme in July, but in good news there has been a drop to fixed rates.

She added:

“The big difference to first-time buyers and those borrowing at higher LTVs as the year progresses will be the changes to the loan-to-income (LTI) rules. Lenders would be wise to do as much as they can to support new buyers, and it remains essential borrowers seek advice to navigate the mortgage maze.”

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