In a notable shift in the mortgage market, two major lenders have introduced mortgage deals with interest rates under 4%, marking the first such occurrence since November. This move comes after the Bank of England's decision to cut its base rate to 4.5% a week ago, sparking optimism among mortgage providers. The Royal Institution of Chartered Surveyors (RICS) anticipates increased housing market activity following the rate cut, which has prompted competitive adjustments among lenders.
The interest rate on fixed-rate mortgages remains unchanged until the deal expires, typically after two or five years. However, tracker and variable rate mortgages closely follow the Bank's base rate. With the recent base rate adjustment, many homeowners are bracing for higher monthly bills upon their next renewal. Despite this, the prospect of further base rate cuts by the Bank of England has inspired lenders to lower their own rates, offering a glimmer of hope for borrowers.
"Borrowers have been crying out for better mortgage rates and we are starting to see them." – Aaron Strutt, of broker Trinity Financial.
Currently, the average rate on five-year fixed deals stands at 5.29%, according to Moneyfacts. The typical mortgage term extends to 25 years, though longer terms of 30 and even 40 years are becoming more common. Meanwhile, the average rate on a two-year fixed deal across the market is 5.48%. Notably, more than eight in 10 mortgage customers have fixed-rate deals, which could impact their refinancing decisions amid changing rates.
The introduction of sub-4% mortgage rates requires eligible borrowers to provide a substantial 40% deposit. Rachel Springall from Moneyfacts highlights that this development was anticipated.
"It was only a matter of time for lenders to bring back sub-4% mortgages," – Rachel Springall, from financial information service Moneyfacts.
"This is a positive injection to the mortgage market and when a big lender makes such a move, it can prompt its peers to follow suit with cuts of their own." – Rachel Springall, from financial information service Moneyfacts.
The financial landscape for homeowners remains challenging as approximately 800,000 fixed-rate mortgages with interest rates of 3% or lower are expected to expire annually until the end of 2027. As these borrowers seek refinancing options, they may face higher rates unless more lenders follow suit with competitive offers.
"The millions of mortgage borrowers looking to refinance this year need some good news." – Rachel Springall, from financial information service Moneyfacts.