Several of the UK’s biggest lenders have announced cuts to their mortgage rates this month, providing some relief for homeowners struggling to cover living expenses.

NatWest, HSBC and Halifax are among those lenders who have reduced their mortgage rates this month, with some lenders, such as Nationwide Building Society, cutting rates more than once. Halifax, for example, has cut some of its fixed rate deals by up to 0.71 percentage points, while Nationwide has reduced rates by up to 0.55 percentage points and then again by up to 0.40 percentage points.

Here, we look at why lenders are cutting their mortgage rates now, and what this means for you.

Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.

If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,000 reviews.

Why are mortgage rates falling?

Recent mortgage rate cuts follow 14 consecutive increases in the Bank of England base rate since December 2021, with the latest rise taking the base rate to 5.25%. Mortgage rates generally rise when the base rate goes up, so many homeowners may be surprised to see costs falling.

However, this is due to the fact that last month’s inflation figures were better than expected, prompting hopes that the Bank won’t need to continue raising rates. Increasing interest rates can help slow inflation as it raises the cost of borrowing, dampening consumer spending and causing prices to rise more slowly. When inflation eases, rate hikes are less likely to continue.

Ben Thompson, deputy chief executive at the Mortgage Advice Bureau said: “The last few weeks have seen lenders cutting their mortgage rates, with some doing so more than once. Compared to where rates were last year, the drops are far from substantial, but the cuts are a move in the right direction after months of increasing rates.

“The cuts are very largely a consequence of last month’s inflation drop, giving markets confidence that rates might not need to stay as high for as long.”

It’s important to note too that rather than being pegged to the base rate, fixed mortgage rates are predominantly determined by what is happening to ‘swap’ rates. These are fixed rates that institutions charge each other to borrow money.

Swap rates are affected by various factors, including long-term market projections for the Bank of England base rate, as well as the broader economic outlook. Swap rates currently suggest that the Bank of England base rate may have reached, or be close to reaching its peak, and could then start to fall back again once inflation is nearer the government’s 2% target.

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How high are mortgage rates now?

Even though many lenders have reduced the cost of their fixed mortgage deals recently, rates remain steep. According to Moneyfactscompare.co.uk, as of this month, the average two and five-year fixed mortgage rates stand at 6.85% and 6.37% respectively, compared to 2.08% and 2.34% in August 2020.

Remember, however, that these are just average rates, so you may be able to secure a much lower rate, provided you own a good chunk of equity in your home and can prove that monthly payments will be affordable.

For example, at the time of writing, the lowest two-year fixed rate we could find was 5.86%, and the lowest five-year fixed rate was 5.28%. Five-year fixed rates currently tend to be lower than two-year fixed rates as markets expect rates to fall back slightly over the longer term.

Should you wait for rates to fall further before remortgaging?

If your current mortgage deal is due to finish soon, you might be wondering whether to delay looking for your next mortgage in the hope that rates may fall further. Bear in mind however, that it’s impossible for anyone to predict exactly where mortgage rates will move next, so there are no guarantees that waiting would pay off.

The good news is that most lenders will allow you to tie into your next mortgage three to six months before your current deal finishes. This means you can secure a competitive rate before it disappears, but you can also arrange your next mortgage deal to begin as soon as your old one finishes, which means you avoid rolling onto your lender’s standard variable rate.

Teddy Cenaj, mortgages expert at Habito said: “I tell all my clients that they should be looking to start their remortgage at least six months before their current fixed rate runs out. This allows them to secure a rate now (most have no upfront cost), and to then keep an eye on the market. If rates do drop, we can then go with the better rate, but if rates rise, then they have already secured the best rate for themselves.”

You can find out more about the paperwork you’ll need to provide to support your mortgage application in our guide How to apply for a mortgage – everything you need to know.

Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.

If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,000 reviews.

If you’re finding it hard to keep up with your mortgage repayments, please talk to your lender to discuss ways you might be able to make your monthly costs more affordable. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with steeper costs.

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