Mortgage price war knocks £1,700 off annual payments
The best mortgage rates are expected to fall below 4pc in the coming weeks, after an escalating price war knocked thousands of pounds off the cost of borrowing.
Interest rates on fixed mortgages have steadily fallen since peaking in November 2022 at levels not seen since the financial crisis. It comes as competition heats up between banks to secure business from borrowers after months of economic turmoil.
Analysts and brokers anticipate borrowing costs to fall further, despite expectations the Bank of England will make its tenth consecutive increase to the Bank Rate on Thursday.
The Monetary Policy Committee is widely forecast to increase the central interest rate by 0.5 percentage points to 4pc as it battles to tame inflation. But experts do not believe the rise will be passed on to borrowers on fixed-rate mortgages.
Instead, the most competitively priced five-year mortgage deals are soon expected to drop below 4pc.
Mark Harris, of mortgage broker SPF Private Clients, said: “Lenders continue to chip away at fixed-rate mortgage pricing as swap rates edge gently downwards.
“It won’t be long before the psychological 4pc barrier is breached, making fixes considerably more attractive than they were just a few weeks ago.”
Lender Virgin Money today reduced one of its five-year deals to 4.17pc and cut a ten-year deal to 3.99pc, although longer deals are less popular with borrowers. It follows hundreds of rate reductions 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 offer on properties once rates dropped below 4pc.
Mr Anderson said: “I think we will see sub-4pc fixed rates in the coming weeks as banks jostle for mortgage business.
“The mortgage market has been a very strange place for borrowers with fixed rates falling over the past three months, while the Bank Rate has increased.
“Borrowers should remember to get in touch with their bank or broker if they have a fixed-rate mortgage offer which they have not drawn down yet, as it’s likely it will be cheaper now.”
Cheaper borrowing costs have already shaved thousands of pounds off the cost of a typical mortgage in less than three months.
The average two-year fixed rate has fallen from a high of 6.65pc in mid-November, to 5.46pc today, according to analyst Moneyfacts. A typical borrower with a £150,000 loan who postponed locking in a rate will have saved almost £150 in monthly interest, equating to an annual saving of £1,788.
A borrower with a £200,000 mortgage will have saved £199 a month in interest, or £2,388 a year.
Likewise, the average five-year fixed rate has fallen from 6.51pc to 5.22pc in the same period – a drop of 1.29 percentage points. A borrower who took out a £200,000 mortgage on a five-year fixed deal today, instead of November, would save £214 a month, or £2,568 a year, in interest.
David Hollingworth, of broker L&C Mortgages, said further rate reductions were on the horizon.
Mr Hollingworth said: “Funding conditions have improved and as lenders compete harder for mortgage business a price war has broken out, sending fixed-rate costs plummeting.
“The annual cost of the current best in class fixed deals is thousands of pounds lower than just a few months ago.”