Britain’s biggest banks are locked in a fierce mortgage price war, with the lowest rates on the brink of falling below 3.5 per cent for the first time in more than three years.
Halifax, the nation’s largest lender, became the latest to slash a range of its fixed-rate deals by up to 0.17 percentage points. The High Street bank now offers rates as low as 3.57 per cent.
The move follows a flurry of rate cuts announced this week by lenders, including NatWest, Barclays and Nationwide. Most notably, Santander is offering rates as low as 3.51 per cent.
The cuts will further bolster hopes that mortgage costs could continue to fall in the New Year, with experts predicting they could fall as low as 3 per cent.
Someone buying with a 40 per cent deposit can now choose from five lenders, all offering rates below 3.65 per cent.
Households needing to remortgage can also get their hands on lower rates, with a number of lenders offering around 3.7 per cent. NatWest is the pick of the bunch with a 3.66 per cent two-year deal, albeit with a £1,454 fee attached.
Someone switching a £200,000 mortgage to NatWest’s rate could expect to pay £1,018 a month with a 25-year repayment term. That is £116 less each month than someone would have paid on the best two-year fixed rate two years ago, which was at 4.7 per cent.
Someone buying a home with a 40 per cent deposit can now choose from five lenders, all offering rates below 3.65 per cent
Could mortgage rates go lower?
The Bank of England is widely expected to cut interest rates, also known as the base rate, next Thursday from 4 per cent to 3.75 per cent.
This matters because it determines the interest rate the Bank pays to commercial lenders that hold money with it and therefore influences the rates they charge people to borrow money.
Most lenders alter the interest they charge on fixed-rate mortgages ahead of the Bank of England’s rate decision, especially when there is a strong sense of whether the base rate will be cut or not.
This is why the lowest fixed-rate mortgages are below the Bank of England base rate of 4 per cent.
Ravesh Patel, of broker Reside Mortgages, says: ‘Mortgage rates are falling because financial markets expect the Bank of England to continue cutting interest rates.
‘This has pushed swap rates and gilt yields lower, which has reduced lenders’ funding costs.’
Swap rates determine the cost for banks to borrow money to lend to homeowners.
Ravesh Patel says mortgage rates are falling because markets expect the Bank of England to continue cutting interest rates
Interest rates are tipped to fall to 3.25 per cent next year, while some analysts, including those at HSBC, predict they could fall to as low as 3 per cent by the end of 2026.
One market commentator even said the Bank of England could catch markets off-guard as soon as next week with a 0.5 per cent cut to 3.5 per cent.
Samuel Mather-Holgate, managing director at wealth manager Mather & Murray Financial, says: ‘There is every prospect that we could be headed into a period where interest rates start with a three for a year or two.
‘I also believe markets are underestimating the possibility of a 0.5 per cent mega-cut in the base rate, as the Bank of England, for once, seeks to get ahead of the curve.’
If interest rates do fall further than most analysts currently expect, this could result in lower fixed-rate mortgages.
Mike Staton, of Mansfield-based Staton Mortgages, is predicting sub-3 per cent mortgage rates by the summer.
He says: ‘While HSBC is predicting a 3 per cent base rate by the end of 2026, I am feeling bolder and believe we will see 2.5 per cent, with lenders offering sub-3 per cent mortgages by the end of summer next year.’
Should you lock in a fix now or try something different?
Anyone taking out a mortgage this month will likely be facing a dilemma of how long to fix their rate for – if at all.
It is a decision that could save – or cost them – thousands of pounds, depending on what they choose.
Some will opt for a two-year fix hoping that interest rates will fall over the next couple of years.
They are essentially banking on the expectation that the base rate – and then mortgage rates – will come down, allowing them to fix at a cheaper rate.
Others will fix for five years. These currently come with marginally higher rates but provide certainty over monthly payments for the next five years, after all interest rates could start to rise again.
Regardless of the length of fix you choose, the advice for those nearing the end of their term is to lock in a deal as soon as possible because you can always switch to a better deal if rates drop. Most mortgage offers can be reserved six months ahead of the date someone’s existing deal ends.
As for those who are confident that rates will fall to 3 per cent or lower, they may be trying their luck with a tracker mortgage.
Trackers follow the Bank of England’s base rate, plus a set percentage.
For example, someone could be paying base rate plus 0.5 per cent with a tracker. With the base rate at 4 per cent, they’d pay 4.5 per cent at present.
But if the base rate fell to 3 per cent, for example, their rate would fall to 3.5 per cent.
The main benefit of tracker deals is that they typically don’t come with early repayment charges.
This means if mortgage rates fall over the coming year or two, someone with a tracker deal could switch to a fixed deal as and when they feel it’s the right time.
In terms of the best tracker deals for those remortgaging with at least 40 per cent equity, Halifax currently offers a two-year deal at 4.11 per cent deal (base rate plus 0.11 per cent).
Halifax, the nation’s largest lender, is the latest to slash a range of its fixed-rate mortgage deals by up to 0.17 percentage points
The deal does come with a £1,499 fee, so it’s important to factor that into any calculations irrespective of there being no early repayment charges.
Someone with a £200,000 mortgage and a 25-year repayment term would expect to be paying £1,068 a month with Halifax to start with.
But of course, were interest rates to fall to 3 per cent by the end of next year, the interest rate would fall to 3.11 per cent and monthly payments to £959.
However, there is no guarantee that rates will continue to fall and there’s a risk they could rise if there are any unexpected market changes.
Patel says: ‘For anyone remortgaging, it makes sense to secure a deal early to protect against any unexpected market changes, most lenders let you lock in a rate up to six months ahead.
‘At the same time, keep reviewing the market because rates have been drifting down, and you can usually switch to a cheaper product before completion.
‘For those comfortable with more risk, a tracker deal without early repayment charges can offer short-term savings, if the Bank of England cuts rates as expected.
‘But one word of warning, it’s important to remember that rates could rise again if forecasts change.’
