The average rate for two-year fixed-rate mortgages has fallen below 6% for the first time since the middle of June, data from Moneyfacts shows.
The rate fell to 5.99% today, from 6.01% yesterday. It is the first time the rate has been below 6% since 19 June.
While five-year residential fixes fell to 5.60%, from 5.61% the previous day, says the data group.
The move follows the Bank of England’s Monetary Policy Committee holding the base rate at 5.25% in November for its second meeting in a row, as it battles inflation at 4.6%.
This has given lenders confidence to bet that the BoE’s rate-raising cycle has come to an end for now, and begin lowering home loan rates.
Many economists say that the MPC will hold rates for the third successive time at its next meeting next Thursday.
EY ITEM Club chief economic advisor Martin Beck says: “December’s MPC meeting will almost certainly prove the third in succession to deliver no change in interest rates.
“There’s been nothing in the way of significant economic surprises over the last four weeks and inflation and pay growth have slowed — the former by more than the Bank of England expected.
“Moreover, most surveys of price pressures have been generally reassuring and activity surveys are still signalling a very sluggish economy. So, there’s no significant case for tightening policy further.”
Many economists do not expect a cut in the base rate until the second half of next year.
Moneyfacts spokesperson James Hyde adds: “The average two-year fixed rate has dipped below 6%, for the first time since mid-June this year.
“Having peaked at 6.86% in late July, rates have been gently falling since early August due to a combination of factors including falling inflation, base rate pauses, and reductions in swap rates.
“In recent weeks, a number of lenders have again begun to offer sub-5% two-year fixed deals — with lowest rates available UK-wide sitting around 4.75% at present.
“It remains to be seen if the recent rate reductions will continue, as any further rises in inflation, base rate, or swap rates may lead to a reversal.”
Hargreaves Lansdown head of personal finance Sarah Coles points out that in June there were 54,700 mortgage approvals for new purchases, according to official figures. But by October this fell to 47,400.
Coles says there is a chance lower rates could encourage approvals to pick up, which would bode well for the property market in the coming months.
However, markets may not see the impact of lower mortgage rates hit house prices until the spring.
Coles says: “Two-year mortgage rates have dropped through the psychologically important level of 6%, hitting 5.99% today.
“This could help bring a chunk of buyers back to the market. It would be a balm for the agony suffered by sellers over the past few months, as their properties sit unseen on the market and their for-sale signs collect grime.”
She adds: “In the past year, mortgage movements have tended to take around three or four months to feed into the official house price figures – partly because of the time it takes to complete a sale.
“Sales figures for the rest of the year are likely to reflect higher mortgage rates over the summer and autumn, which are unlikely to be particularly spectacular.
“Crossing the 6% threshold means we could see mortgage approvals pick up towards the end of 2023 — but house prices are likely to take to the spring to warm up.”
