New figures from the Bank showed no sign of the fierce competition between lenders letting up as the downwards spiral of fixed-rate deals continued in June.
According to The Times, the average two-year fixed rate with a 25 per cent deposit decreased from 1.9 per cent to 1.83 per cent.
This was the lowest level since the Bank’s records began in 1995 and compared with a rate of 2.6 per cent in June last year and more than 4 per cent at the end of 2009, while a five-year fixed rate dropped to a record low of 2.81 per cent, from 3.69 per cent a year earlier.
The costs of average two-year fixed loans with 5 per cent and 10 per cent deposits have fallen the furthest since May, helping those struggling to save up a sizeable deposit amid a backdrop of record high rents, particularly in London.
A two-year fixed mortgage rate with a 10 per cent deposit dropped to 3.36 per cent in June, down from 3.53 per cent in May and 4.5 per cent in the same month last year. A two-year fixed offer with a 5 per cent deposit fell to 4.4 per cent, down from 4.57 per cent in May and 5.32 per cent in June 2014.
At 1.56 per cent, two-year variable rates with a 25 per cent deposit are also less than half the rate they were at the beginning of 2013.
Lenders increased the cost of mortgages at the start of last year as expectations were high that the first interest rate rise would come before Christmas. However, a rate rise has been pushed back until at least the second quarter of 2016.
The Bank’s rate-setting monetary policy committee held rates at 0.5 per cent yesterday where they have remained since 2009. Andy Haldane, the Bank’s chief economist, has even mooted the possibility of a further cut before a rise comes through.
Brian Murphy at the Mortgage Advice Bureau said: “Mortgage repayments are carefully assessed against people’s disposable income, and rate cuts are making these products much more affordable for those who meet the criteria.”
However, he cautioned that the market was relying on the help-to-buy mortgage guarantee policy to boost competition between lenders. He also said that it was vital for government to plan ahead with the mortgage industry so that rates and products that incorporate high loans to value do not take a hit when the guarantee expires.
The Financial Conduct Authority, the City watchdog, warned mortgage advisers that they need to improve standards after the introduction last year of the mortgage market review, aimed at curbing risky lending by tightening the criteria used to assess whether borrowers can afford their loans.
The authority found in the review of the quality of mortgage advice that some companies were failing to take reasonable steps to obtain sufficient, relevant information about customers’ needs and circumstances before making recommendations.
Although 59 per cent of the advice provided to customers was assessed as suitable, the basis for 38 per cent of recommendations was unclear, it said.
In only 3 per cent of instances was a recommendation judged to be unsuitable, the authority said.
The watchdog’s consumer research highlighted that some customers place the greatest importance on the initial monthly payment to the detriment of other factors, which it said could dictate whether they think a mortgage is a “good deal” or not.
Linda Woodall, acting director of supervision at the authority, said: “A mortgage is a significant undertaking for anyone. It is vital that customers are able to get suitable advice and a positive experience when deciding on their options. Some firms were able to provide this, but not all.”