Lenders are offering mortgages with interest rates below 4% in a bid to compete with one another ahead of the Bank of England’s decision on rates. Nationwide, the UK’s biggest building society, is reducing its five-year fixed mortgages from 4.24% for new customers moving home with a 40% deposit, to a rate of 3.99%. Other lenders are also reducing their mortgage rates ahead of a hoped-for central bank rate cut in August. Sarah Tucker, founder of The Mortgage Mum, said, “Although this is only available for purchases right now, we hope that the re-mortgage market will follow.”
Mortgage borrowing costs remain high as the rates lenders offer are based on the central bank’s rate of 5.25%, which is currently at a 16-year high. Some have predicted that the bank will cut rates at its next meeting on 1 August. Central banks increase borrowing costs when inflation is high and decrease them when inflation is low, or to stimulate a sluggish economy.
Around 1.6 million existing borrowers will be looking to re-mortgage as their current fixed-rate deals expire, with some moving off a rate of less than 2%, leaving them facing much higher repayments on their next home loan. Ms Tucker says Nationwide’s new rate is “a hugely positive sign for the mortgage market” during a “turbulent time,” as people grapple with high costs of living and borrowing rates.
The average five-year fixed homeowner mortgage rate is currently 5.4%, down from 5.47% on Monday, according to data from Moneyfacts. The average two-year fixed homeowner mortgage rate is currently at 5.81%, down from 5.88% on Monday. Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said, “Mortgage rates could fall further, but it is difficult to tell how quickly and by what margins…Those waiting for the Bank of England to cut base rate may be crossing their fingers for August, but this has split opinions among economists who are now pointing towards September at the earliest due to stubborn service inflation.”
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