As competition between lenders heats up ahead of the Bank of England’s next rate decision, mortgage rates have fallen. The average rate for a two-year fixed deal, which was nearly 6% at the start of the month, is now 5.79%, according to Moneyfacts. The average five-year rate stands at 5.39%.
Nationwide has recently reduced its five-year fixed mortgage rate to 3.99% plus a fee for new customers moving home with a 40% deposit. Mortgage analyst Kylie-Ann Gatecliffe suggests this could signal the beginning of a “rate war” among major banks.
The UK’s largest building society, Nationwide, is offering rates below 4% for the first time since February. “Although this rate is currently only available for purchases, we hope the remortgage market will soon follow,” said Sarah Tucker, founder of The Mortgage Mum.
Matt Smith from Rightmove commented, “We’ve seen a significant drop in average mortgage rates this week. The first sub-4% rate for those with larger deposits and willing to pay a higher fee is making headlines, but notable reductions in other loan-to-value brackets are also benefiting more mass-market movers.”
Despite these drops, mortgage borrowing costs remain higher than homeowners have experienced in a decade, as lenders base their rates on the central bank’s rate, which is at a 16-year high of 5.25%. However, some predict a rate cut at the central bank’s next meeting on 1 August due to falling inflation.
Central banks typically increase borrowing costs when inflation is high and decrease them when inflation is low or to stimulate the economy. Even if rates drop, many borrowers may still struggle to make repayments.
Approximately 1.6 million borrowers will need to remortgage as their current fixed-rate deals expire, many transitioning from rates below 2% to much higher repayments on their next home loans. Despite this, Sarah Tucker of The Mortgage Mum views Nationwide’s new sub-4% rate as “a hugely positive sign for the mortgage market” during these “turbulent times” marked by high living costs and borrowing rates.
“This is a fantastic sign of stability and lower interest rates ahead,” she remarked, noting that the recent general election has contributed to a sense of stability among consumers and the market.
Rachel Springall from Moneyfacts added, “Mortgage rates could fall further, but it is difficult to predict the timing and extent of these decreases. Those hoping for a Bank of England base rate cut may be eyeing August, but opinions are divided, with some economists suggesting September at the earliest due to persistent service inflation.”