As fixed rates fall, the mini-budget is becoming a distant memory
It’s seared in the memory of mortgage brokers industry wide – that momentous day in September 2022, when a seismic event changed life as we knew it. No, not the death of Queen Elizabeth II, historic though it was.
The mini-budget, delivered just several weeks after the monarch died, was unveiled as part of a growth plan that would define the extraordinarily short tenure of Liz Truss as Prime Minister. It effectively put a stick of dynamite under the mortgage market, and led to the PM’s swift departure – she was in office for just 49 days. The Queen’s reign, by comparison, was 70 years and 214 days.
Mortgage products were hastily withdrawn, interest rates rose as sharply as the glass elevators in Canary Wharf’s skyscrapers, and anxious borrowers on a variable rate found their monthly payments rocketing.
Now, two years on, a new report from Moneyfacts, which analyses financial product data, suggests that we may finally consign the fallout from the mini-budget to history - the mortgage market is showing real signs of recovery.
Average mortgage rates on two- and five-year fixed rate deals fell by 0.21% and 0.18% in August, respectively, Moneyfacts reports. The average two-year-rate was 5.56%, and five-year fixed rates averaged 5.20%. The two-year fixed rate reached its lowest level since February 2024, while the five-year rate was at its lowest level since March 2024. The average two-year tracker variable mortgage fell slightly to 5.68%.
What impact did the mini-budget make?
“At the start of September 2022, the average two-year fixed mortgage rate stood at 4.24%; a year later it was 6.70%,” reflected Rachel Springall (pictured right), finance expert at Moneyfacts. “Fixed mortgage rates are now much lower than they were this time last year, and fell across the spectrum during August, which will be welcome news for prospective borrowers.
“Overall, the average two- and five-year fixed rates have now fallen for the second month running and are back down to levels not seen for over six months. It can take a few weeks for lenders to react to a volatile swap rate market, so it’s good to see mortgage pricing moving in a positive direction. A sense of product stability also returned to the market, as the average shelf-life of a deal rose to 21 days, up from 17 days in August.”
David Hollingworth, associate director of communications at broker L&C Mortgages greeted the data enthusiastically. The cut to the base rate in August had helped to bring down the cost of funds, he said, dipping rates below ‘the psychological 4% barrier’, and lenders had passed this on to borrowers.
“These are quite substantial drops to the average rates, which underlines just how many changes lenders have been making to their rates in recent weeks,” said Hollingworth (pictured left). “The competition in the market is clear to see, as lenders continue to make regular changes to their rates to keep up with a rapidly shifting market. That poses a good deal of additional work for advisers as their customers will be keen to take advantage of the best possible rates.
“The fall in rates is obviously a positive for borrowers and will be very encouraging for those making a move or coming to the end of an existing deal. Cheaper rates means more affordable payments when compared to those on offer only a year ago.”
Consumer confidence should be boosted by the improved rates on offer, Hollingworth added, along with the expectation of further base rate cuts.
“That should help anyone thinking of moving home look forward with more optimism and should help to boost activity in the purchase market that was hit hard by higher rates,” he said.
Read more: How will the Bank of England rate cut affect mortgage approval levels
What difference will an improving mortgage market make to brokers?
Alexander Hamilton (pictured centre), who is head of later life lending & bridging at Positive Lending, also received the findings warmly, and said any rate reduction was a benefit to a brokerage such as his.
“The report makes interesting reading and reflects the current market trend,” Hamilton told Mortgage Introducer. “We are seeing a small price war on the high street, which will no doubt have a positive impact on new buyers and clients who are remortgaging to get a better deal.”
Hamilton was more cautious about the prospect of a further base rate cut when the Bank of England’s Monetary Policy Committee meets next week.
“I would suggest that the rates will be kept at 5% until the end of the year,” he reasoned. “Inflation is 0.2% above the BOE benchmark, which is broadly in line with policy.”
According to Moneyfacts, mortgage availability was impacted over August - product choice saw its biggest month-on-month drop since February 2024, down slightly from 6,657 to 6,523 at the beginning of September. This was in contrast to the notable uplift in products seen during previous months. Choice is more plentiful than a year ago, though, when there were 3,890 products.
Life as a broker is becoming more manageable, as rates fall, declared Serena Smith, mortgage & protection specialist at Mortgages with Serena.
“In comparison to 2023, when I personally moved and sadly locked in for two years,” said Smith (main picture, right), “the difference is monumental, and making a huge difference to affordability. The shock aspect for remortgage clients is reduced.”
