Mortgages: With rates at all-time low what should borrowers do next?

27th June 2011

Moneyfacts started recording rates in 1988 and reports that current rates for fixed and tracker deals are unprecedented. The last few months lenders have steadily reduced mortgage rates, battling it out to reach the top of the best buys.

The average two, three and five-year fixed rates now stand at 4.32%, 4.92% and 5.29% respectively. Meanwhile borrowers pay an average rate of 3.37% for a two-year tracker.

Michelle Slade, spokesperson for, says: "Earlier this year the market expected a rise in bank base rate that saw mortgage rates start to rise.

"An imminent rise in bank base rate now appears unlikely and the cost of funding on the swap rate market has reduced.

"This reduction in funding costs has led to average mortgage rates falling to their lowest level since Moneyfacts started recording rates in 1988."

Moneyfacts says that lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands.

 "While rates may still fall slightly further, it is likely that some lenders will instead opt to make existing competitive deals available to borrowers with smaller deposits," says Slade. "Unfortunately for borrowers, lenders don't appear to be passing the full fall in the cost of funding on to lower mortgage rates.

"The spread between the cost of funding and average mortgage rates now stands at its highest level since December 2010."

Clare Francis, mortgage spokesperson at, says borrowers looking to protect themselves from future rate rises can now lock into a fixed rate at a lower level than they'd have been able to do a few months ago.  

"However, with no one knowing when base rate will start rising, and a number of economists saying it could be next year at the earliest, some borrowers will be happy to take a gamble and go for a variable tracker mortgage in order to benefit from lower repayments now," she says, "Interest rates will start rising at some point though, so anyone considering a variable rate deal needs to make sure they'll be able to afford higher monthly repayments."

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