The average two-year fixed mortgage rate dropped by 0.37% in February to 5.56%, market data revealed.
The Moneyfacts UK Mortgage Trends Treasury Report showed this was the biggest monthly fall since December 2022.
It was the sixth consecutive month where declines in the average two- and five-year fixed rates were recorded, with the five-year fix falling from 5.55% to 5.18%.
The average two-year fixed rate is currently 0.38% higher than the five-year equivalent.
This time last year, there was a 0.24% differential between the two, with the average two-year fix standing at 5.44% and the average five-year fix at 5.2%.
According to the Moneyfacts data, there was little change in the average variable rates in February. The average for a standard variable rate (SVR) came to 8.17% in February, slightly down from 8.18% in January.
Compared to last year, this was significantly higher than the average SVR of 6.84%.
The average two-year tracker mortgage rate stayed the same month-on-month at 6.15%, and was also notably higher than last year, when it was 4.39%.
Fewer deals on the mortgage market
In February, Moneyfacts recorded 5,787 mortgage products on the market, which was slightly lower than the 5,899 available in January.
This was the first monthly drop since July last year.
There are still more products on the market than the last two years, as there were 4,341 in February 2023 and 5,356 during the same month in 2022.
The average shelf life of a mortgage extended from 21 days in January to 28 in February. This is the highest figure since February last year.
A constant review of rates
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers searching for a new mortgage deal may be delighted to know fixed mortgage rates continued their downward trend, with the average two-year fixed rate dropping by its biggest margin since December 2022. Those borrowers who have waited patiently in recent months to refinance, or indeed are preparing for when their mortgage deal expires, would be wise to review rates, as lenders are closely monitoring the volatile swap rate market, which tends to influence fixed rate pricing.
“There have been big expectations for fixed rates to fall further, and whether now is the right time to refinance will come down to an individual’s circumstances. Lenders are in constant review of their ranges, and it is likely rates will fluctuate in the coming weeks due to the noises surrounding future rate expectations.”
She added: “The recent observations made by the Bank of England (BoE) would suggest base rate is unlikely to move for a few months yet, and indeed the Monetary Policy Committee (MPC) will wait for firm evidence that inflation is under control before even considering a rate cut. Borrowers who are sitting on their SVR should be incentivised to switch their mortgage if they can, as it’s unlikely they will see their repayments drop for the foreseeable. Indeed, the average two- and five-year fixed rates are much lower than the average SVR.”
Springall said first-time buyers would be “pleased” to know rates had fallen, adding that the average two-year fixed rate at 95% loan to value (LTV) had fallen below 6% for the first time since May 2023 to 5.94%.
She said this was “much lower than six months ago, when it was just over 7%”.
Springall added: “Product choice has also increased at this LTV bracket and, while it’s a slight improvement month-on-month, it is encouraging and demonstrates lenders are still keen to support borrowers with small deposits. However, we have seen some product availability drop around other higher LTV brackets, at 90% and 85% month-on-month, so it will be interesting to see whether there will be further declines in these areas over the next few months, or if it’s a short-term adjustment.
“Lenders are actively reviewing their ranges, so product choice could remain volatile, but borrowers must be quick to check deals as the average shelf life stands at 28 days, the highest in a year.”