For the first time since the summer days of June, the five-year mortgage rate for an 85% loan-to-value (LTV) has descended below the 5% threshold. This change marks a significant milestone in the property financing world, suggesting a trend that might see rates “continue to edge downwards”.

An 85% LTV mortgage implies that you, the borrower, would provide a 15% down payment on your home purchase, with the mortgage covering the remaining 85% of the property’s cost. The drop in the rate for such mortgages to 4.99% is a positive signal, especially for first-time buyers and those moving homes who are typically in this bracket.

The Bank of England’s Influence

This downtick follows the Bank of England’s decision to maintain interest rates, a move that has occurred twice in succession. The stability suggested by these decisions offers a glimmer of hope that interest rates might have plateaued. For those considering a mortgage, this can be seen as a green light for more predictable, perhaps even lower, future rates.

The Role of Inflation

Simon Gammon of Knight Frank Finance highlights that while sub-5% rates are improving market sentiment, it’s not a complete solution. Many are transitioning from mortgage deals with rates below 2%, and the future trajectory of mortgage rates will be heavily influenced by the rate of inflation. The expectation is that if inflation falls within the 4-5% range, as anticipated by the Bank of England, mortgage rates could ease even further, potentially around 4.5% by the year’s end.

Borrower Behavior: Trackers vs. Fixed Rates

In the current climate, many borrowers are gravitating towards tracker mortgage products. These products’ interest rates vary with the base rate set by the Bank of England, unlike fixed rates that stay the same for the duration of the term. The reasoning behind this preference is that borrowers are poised to take advantage of potential cuts to the base rate next year, even with the risk that the Bank may increase rates again.

The Property Expert’s Perspective

Matt Smith, a mortgage expert from Rightmove, views the consecutive pause in rate hikes as an indication that the Base Rate might have reached its peak. This perception instills confidence among those planning to secure a mortgage shortly. The introduction of a sub-5%, five-year fixed-rate mortgage in the crucial 85% LTV category is a noteworthy development for a sector that sees significant activity from first-time buyers and those moving homes.

In Summary

The dip below 5% for the 85% LTV five-year mortgage rate coupled with the Bank of England’s hold on interest rates is providing some respite in the property market. With predictions of further easing of rates in response to inflation trends, and the growing popularity of tracker mortgages, we are looking at a dynamic period for property financing.