The majority of the UK’s biggest mortgage lenders have cut some rates to below 4% in recent days in a ‘price war’ to attract new customers, so is now the right time to secure a good deal?

Halifax has just become the latest lender to reduce its rates by up to 0.45 percentage points, joining a flurry of other lenders in offering sub-4% deals. Barclays and Santander have also reduced their mortgage rates this week, cutting rates by up to 0.82 percentage points. Santander, for example, has reduced its cheapest five-year fixed rate at 60% LTV to 3.89% for remortgages.

Other lenders currently offering rates below 4% include the Co-operative Bank, HSBC, Yorkshire Building Society and Virgin Money. At the time of writing, Barclays was offering the cheapest two-year fixed rate at 4.17% for property buyers.

According to financial analyst Moneyfactscompare.co.uk, all seven of the UK’s biggest lenders, including Lloyds, TSB, and NatWest, and 31 lenders have cut mortgage rates so far in 2024. The average two-year fixed rate is now 5.71%, and the average five-year fixed rate is 5.31%.

Meanwhile, the number of mortgage deals available on the market has risen significantly in the past year, and currently stands at 6,096. This is the highest number of products available to customers since 2008, and is a considerable improvement on the 4,432 products on offer in July 2023.

The rate cuts have come as the Bank of England has held interest rates at their current level for three consecutive months, amid hopes that inflation has now stabilised. The Bank held the base rate at 5.25% in December, the third time in almost two years that we haven’t seen a hike. However, the rate remains at its highest since the financial crisis of 2008. Read more in our article Interest rates held at 5.25%: what it means for you.

Teddy Cenaj, mortgages expert at Rest Less Mortgages, said: “It’s likely that lenders are competing to offer the cheapest rates as they’ve had a poor last year for lending, and they want to get as much business as possible in 2024. It’s great news that there are now fixes at below 4%, for the first time since last summer.

“The series of cuts by lenders is a positive move for those who are remortgaging, although many people will still be coming off significantly lower rates.”
Around 55% of UK homeowners have moved on to a higher rate since mortgage rates started to rise from a record low of 0.1% in December 2021, according to think tank the Resolution Foundation. A further 5 million are expected to move onto a new deal by 2026.

Will mortgage rates continue to fall?

Despite mortgage rates continuing to fall in 2024, brokers say that they are unlikely to go much lower. Lenders usually base their fixed rates mortgages on expectations for future interest rates.

Mortgage rates are significantly influenced by ‘swap’ rates, which are the rates that banks and building societies charge each other to borrow money. Swap rates are affected by the wider economic outlook and predicted movements in the Bank of England’s base rate.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “With the Bank of England holding interest rates at its December meeting, there is a growing belief that rates have peaked and the next move will be downwards.

“Meanwhile, lenders have been reducing their new fixed-rate mortgages as swap rates, which underpin their pricing, have been falling. A sub-4 per cent five-year fix was launched just before Christmas and other lenders are reducing rates to attract business after a disappointing 2023.

“While borrowers must get used to a higher interest rate environment, there are some tempting January sales to entice borrowers.”

Some brokers believe that rate falls seen at the beginning of this year could be short-lived. Chris Sykes, from broker Private Finance, pointed out that swaps have started to edge upwards in the last few days.

He said: “Some lenders may be priced too competitively in the current market and these cheap rates could be short lived in certain cases, but most rates currently on the market still have a fair margin against swaps attached to them.”

Whatever happens, it seems unlikely that rates will sink to the sub-3% rates on offer before December 2021 anytime soon.

What does this mean for you?

As the past few years have shown, it’s impossible to predict with certainty which way mortgage rates will move next. This makes it really difficult for anyone to decide on the right time to fix their mortgage, as the market could suffer another blow that sees rates rise.

Sykes said: “Geopolitical tensions are a main threat to inflation in 2024. Notably the ongoing war in Ukraine, the Israel-Hamas conflict, and unrest in the Red Sea through which 12% of annual global trade flows.

“The economy may face the repercussions of a backlog of price hikes in the coming months, driven by supply disruptions that prompt business owners to transfer these costs to consumers. Likewise, the uncertainty surrounding the multitude of elections in 2024, coupled with concerns about GDP growth and the possibility of entering a recession, adds an additional layer of complexity to the economic landscape.”

If you’re currently on a mortgage deal, you’ll usually move automatically onto your lender’s Standard Variable Rate (SVR) once this ends. However, sitting on your lender’s SVR in the hope that rates could fall further is costly. According to Moneyfacts.co.uk, the average SVR is currently 8.19%. This means you’ll pay hundreds if not thousands of pounds more a year than securing one of the current best buy mortgage deals.

If you’re on a fixed rate, you can start looking for a new deal up to six months before your current deal ends. It’s worth seeing what your existing lender will offer, then comparing this with the rest of the market. Starting the process as soon as possible will enable you to lock in to a rate, so you don’t have to worry if rates rise in the months ahead. Conversely, if they fall, you can move to another deal penalty-free during this period if this makes financial sense. Read more in our article When is the best time to remortgage?

Get expert mortgage advice

A broker can help you to find the cheapest mortgage deal for your circumstances, and continually review your rate and ensure you secure the best rate until your deal starts. A broker can also do the sums on your behalf, as once you factor in mortgage fees, you may find that the lowest rate isn’t the best one for you. Read more in our article Why the lowest rate mortgage may not be the cheapest deal.

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