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Recent Drop in Five-Year Fixed Mortgage Rates Offers Relief Amid Inflation

In a surprising turn of events, mortgage rates have witnessed a significant reduction as inflation, although persistently high, unexpectedly receded. For the first time in nearly three months, the interest rate on the average five-year fixed mortgage has dipped below the 6% threshold.

According to the authoritative financial data provider, Moneyfacts, the last time the average five-year rate stood below 6% was on July 3rd. As of the latest update, the average interest rate for a five-year fixed mortgage has been lowered to 5.99%.

It's worth noting that the spectrum of mortgage options still presents a range of rates, with some more affordable and others costlier. Nevertheless, this shift in the average rate is a welcome development for the majority of UK homeowners who have opted for fixed-rate mortgages, particularly in the midst of the ongoing financial challenges brought about by the cost of living crisis.

Nonetheless, there's a looming concern for the 2.4 million UK homeowners with fixed-rate mortgages set to expire between July of the previous year and the close of 2024, as reported by UK Finance, the banking industry's trade association. This situation may necessitate transitioning into pricier mortgage contracts.

To put this into perspective, just two short years ago, in October 2021, the average interest rate for a five-year mortgage deal was a significantly lower 2.55%. The upswing in mortgage costs can be largely attributed to the Bank of England's strategy of raising the base interest rate as a measure to combat and alleviate the persistent inflation, which presently stands at a staggering 6.7%—well over three times the Bank's target rate of 2%.

This decision by the Bank to increase base interest rates serves a dual purpose: to encourage savings and dampen economic demand by withdrawing capital from the economy. The objective is to mitigate the current spike in inflation, which surged to new heights following Russia's invasion of Ukraine.

In response to the series of base rate hikes implemented by the Bank's Monetary Policy Committee, lenders have naturally adjusted their mortgage rates upwards to align with the new economic climate.

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