The best mortgage rates are expected to fall below 4 percent in the coming weeks, following a escalating price war thousands of pounds off the cost of borrowing.
Interest rates on fixed mortgages have fallen steadily since peaking in November 2022 to levels not seen since the financial crisis. It comes as competition between banks intensifies to secure borrower business after months of economic turmoil.
Analysts and brokers expect borrowing costs to fall further, despite expectations from the Bank of England raise bank interest rates for the tenth time in a row on Thursday.
It is widely predicted that the Monetary Policy Committee will raise the central rate by 0.5 percentage point to 4 percent in its fight to contain inflation. But experts don’t believe the increase will be passed on to borrowers with fixed-rate mortgages.
Instead, the most competitively priced five-year mortgages are expected to fall below 4% soon.
Mark Harris, from mortgage broker SPF Private Clients, said: “Lenders continue to lower their fixed rate mortgage prices as swap rates slowly fall.
“It won’t be long before the psychological 4pc barrier is broken, making fixes significantly more attractive than a few weeks ago.”
Lender Virgin Money today cut one of its five-year deals to 4.17 percent and a ten-year deal to 3.99 percent, though longer deals are less popular with borrowers. It tracks hundreds of rate cuts by lenders so far this year.
Adrian Anderson, of broker Anderson Harris, said falling rates would boost buyer confidence, with some of his clients keen to bid on properties once rates dip below 4 percent.
Mr Anderson said: “I think we will see fixed rates below 4 per cent in the coming weeks as banks scramble for mortgage business.
“The mortgage market has been a very strange place for fixed rate borrowers that have fallen over the last three months while bank rates have risen.
“Borrowers should remember to check with their bank or broker if they have a fixed rate mortgage offer they haven’t taken up yet, as it will likely be cheaper now.”
Cheaper loan costs have already saved thousands of pounds on the cost of a typical mortgage in less than three months.
According to analyst Moneyfacts, the average two-year fixed rate has fallen from a high of 6.65 percent in mid-November to 5.46 percent today. A typical borrower on a £150,000 loan who has delayed setting a rate will have saved nearly £150 in monthly interest, equating to annual savings of £1,788.
A borrower with a £200,000 mortgage will have saved £199 a month in interest, or £2,388 a year.
Similarly, the five-year average fixed rate fell from 6.51 percent to 5.22 percent over the same period — a drop of 1.29 percentage points. A borrower who took out a £200,000 five-year fixed-term mortgage today, rather than in November, would save £214 a month or £2,568 a year in interest.
David Hollingworth, of broker L&C Mortgages, said further rate cuts are on the horizon.
Mr Hollingworth said: “Financing conditions have improved and as lenders compete more fiercely for mortgage business, a price war has broken out, sending fixed interest costs plummeting.
“The annual cost of today’s best-in-class fixed deals is thousands of pounds lower than a few months ago.”