The interest rate on the average five-year fixed mortgage has dropped below 6% for the first time in nearly three months.
According to financial information firm, Moneyfacts, the last time the average five-year rate was below 6% was 3 July.
As of Thursday, the firm said, the charge for the average five-year fixed mortgage is 5.99%.
Mortgage holders can still get cheaper or more expensive deals.
But the majority of UK residential mortgages are fixed rates, so the fall in the average will be seen as a positive sign during the ongoing cost of living crisis.
Of the UK’s fixed-rate mortgages, 2.4 million have been due to expire between last July and the end of 2024, according to the banking industry trade body, UK Finance.
It means millions of people will likely have to sign up to pricier contracts.
Just two years ago, in October 2021, the average rate on a five-year deal was 2.55%.
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Rising mortgage costs are causing pain in several marginal Conservative seats, including Wokingham, in Berkshire, and Pudsey in Yorkshire.
Mortgage bills had been going up, driven largely by the Bank of England increasing the base interest rate in an effort to reduce inflation, which currently stands at 6.7% – more than three times the Bank’s target of 2%.
In response to increased base rates, decided by the Bank’s Monetary Policy Committee, lenders have been increasing the rates they offer on their mortgages.
But the mortgage rate increases have begun to slowly reverse.
A surprise drop in key measures of inflation has brought to a halt the Bank’s programme of 14 rate rises – the rate was held at 5.25%.
While the 6.7% rate of inflation, in the year up to August, is high, it’s lower than economists had expected and led to the base rate remaining the same.
Even before the latest official inflation data average mortgage rates had been coming down as a result of sharply falling inflation figures.
The inflation data led markets to expect fewer interest rate rises, which brought down how much financial institutions were charging for their mortgage products.
Rates for other mortgage products have also come down. The average two-year fixed mortgage rate is 6.5%, down from 6.53% on Wednesday. It ticked above 6% in June.
Base interest rates have been upped by the Bank to encourage saving and dampen economic demand by taking money out of the economy. It hopes this will birding down the rate of inflation which reached new highs after Russia’s invasion of Ukraine.
Analysis from Sky News has shown that mortgage holders are in the minority in the UK and the majority of people are renting.
Written by: Newsroom