The average for two-year fixed-rate contracts is now 6.19%, and the average for five-year contracts is 5.79%, down from nearly 7% in July, according to data firm MoneyFact.
However, even though interest rates are trending downward, current levels are still a significant increase for those who took out two-year contracts in 2021, when average interest rates were well below 3%.
This week, the two-year swap rate fell from 4.78% to 4.66%, and the five-year rate fell from 4.27% to 4.13%.
Swap rates reflect market expectations for future Bank of England rates and are used by lenders to originate fixed rate mortgages.
Market conditions and customer demand are also factored into lenders’ decisions, which could lead to further declines in interest rates by the end of the year.
Lenders typically price the mortgage higher than the swap rate, taking into account the profit margin on the loan.
However, some lenders are understood to be prepared to reduce mortgage margins to increase total lending in 2023, as they are below target due to the housing market downturn.
Simon Gammon, head of finance at Knight Frank, said: “Lenders really want to lend, but they are cutting their margins to the bare minimum and in some cases are losing money.”
“We expect to see rate changes over the next three to four weeks before lenders postpone into the new year,” said Nicolas Mendez, mortgage manager at brokerage John Charcol.
“Lenders will be walking a tightrope between making up for lost time and winning as much business as possible, but will be equally conscious of the impact on service levels.”