The cheapest mortgage is a two-year fix again

The lowest available mortgage rate is now a 2-year fixed rate again, as long as you have a 40% deposit.

Two-year fixed rate mortgages have traditionally been the cheaper option compared with five-year deals but that changed since the mini Budget and cost of living crisis in 2022 as pricing and rate expectations surged.

Lloyds Bank now has the lowest rate on the market, with a two-year fixed rate deal at 3.86%.

But it is not such good news for first-time buyers if you have a smaller deposit.

Matt Smith, Rightmove’s mortgage expert, said:

“Average mortgage rates at the top-end of the market have fallen more quickly than for those with the smallest deposits over the past year. Someone with a 10% deposit is still looking at an average five-year mortgage rate of 4.91%, only slightly down from 4.99% at this time last year.

“By contrast, today someone with a 40% deposit is now looking at an average five-year mortgage rate of 4.20%, down from 4.36% – and we are still seeing some products below the 4% mark in this bracket.

“So while borrowing power has improved for first-time buyers, higher, and slower falling, mortgage rates for those with smaller deposits is still stretching affordability.”

Commenting on the data, Toby Leek, president of NAEA Propertymark, said

“For those looking to step onto the property ladder for the first time, it is proving increasingly difficult. The average deposit made by a first-time buyer is now around £50,000 and the age of those entering is continuing to increase.

“Many people are struggling to save just enough to enter the market, however, to be presented with higher rates at a time when other costs are increasing is disheartening and puts further financial pressure on aspiring buyers.”

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