Lowest fixed rate mortgages on the verge of falling below 4%, as Halifax cuts

• Lowest five-year fix is now 4.06% and the lowest two-year fix is 4.46%
• Halifax has cut its home loan deals by up to 0.22 percentage points
• One mortgage broker thinks a sub 4% rate will arrive very soon 

The lowest five-year fixed rate mortgages are on the brink of falling below 4 per cent, after Halifax cut interest rates across a number of its deals today.

The mortgage lender is cutting its home loan deals aimed at home movers and first-time buyers by up to 0.22 percentage points.

Halifax has followed hot on the heels of NatWest and TSB in announcing the cuts, who made similar changes yesterday.

Halifax is now offering the lowest five-year fixed rate on the market charging 4.06 per cent with a £1,099 fee.

The deal is aimed at home movers buying with at least a 40 per cent deposit. It is marginally lower than the next best deal offered by Barclays at 4.09 per cent.

The average five-year fixed rate is 5.47 per cent, according to interest rate scutineer, Moneyfacts. 

Someone securing a £200,000 mortgage with a 25 year term would pay  £1,062 a month with Halifax compared to £1,225 based on the market average.

Halifax has also cut its two-year fixed rates, meaning the lowest deal on the market is now below 4.5 per cent.

Once again, this is reserved for those buying with the biggest deposits. Its 4.46 per cent deal comes with a £1,099 fee.

The next best rate on the market is once again Barclays at 4.52 per cent with a £899 fee attached.

What about better deals for people remortgaging?

Homeowners approaching the end of their current deals may have noticed that the rates available to them are currently a little higher than those available to buyers

That said, lenders sometimes offer their best rates internally to existing customers in what is known as a product transfer. It would be worth speaking with a lender of a broker to check this.

How much can you afford?

Find out how much you can afford to borrow for a monthly payment amount with This is Money’s mortgage affordability calculator.

Like with its deals aimed at home movers, Halifax’s best remortgage deals are aimed at homeowners with the biggest amounts of equity built up. 

Essentially this means someone needing a mortgage to cover no more than 60 per cent of the property’s market value. 

Halifax, best five-year fix is 4.32 per cent with a £999 fee. The second lowest rate on the market.

And Halifax’s best two-year fix for equity rich homeowners is 4.67 per cent, with a £999 fee. This is the best deal currently on the market.

Those needing a mortgage to cover 75 per cent of a property’s value, can also get top of the market deals with Haifax.

Its lowest five-year fix at 75 per cent loan-to-value is 4.43 per cent with a £999 fee (second best) and its lowest two year fix is 4.77 per cent (third best).

What next for mortgage rates? 

The current direction of mortgage rates may come as surprise to some people given the Bank of England is now being deemed more likely to make its first base rate cut in September, rather than August.

Markets are now pricing in a 25 per cent chance of a bank rate cut next month with the popular view being September.

The concern for the Monetary Policy Committee (MPC) at the Bank of England is high services inflation and wage growth.

But while interest rate cuts have been delayed, mortgage rates are already falling. 

Prior to Halifax, NatWest, TSB, Barclays, Halifax, Nationwide, HSBC and Santander, among others, have all slashed mortgage rates in recent weeks.

This is in largely due to sonia swaps – the benchmark banks and building societies use to price fixed rate mortgage and savings deals.

Sonia swaps essentially show what financial institutions think the future holds for interest rates over the long run and they price accordingly.

Mortgage lenders enter into interest rate ‘swap’ agreements to shield themselves against the interest rate risk involved with lending fixed rate mortgages. 

Mark Harris, chief executive of mortgage broker SPF Private Clients expects mortgage rates to continue falling and thinks will soon see a five-year deal under 4 per cent.

‘Most lenders have reduced their mortgage pricing on the back of lower swaps and in an effort to drum up more business,’ said Harris.

‘We expect mortgage rates to continue to slowly reduce, with five-year fixes starting with a 3 before too long.

‘However, drastic reductions don’t appear to be on the cards with Swaps flatlining in the past few days. 

‘Trying to predict what will happen with rates is always difficult and you need to decide on what to do based upon your own circumstances.’

How long should I fix my mortgage for?

One of the biggest decisons facing ome buyers and people remortgaging at the moment is how long to fix for – if at all. 

Last year, most borrowers opted to fix for two years. They believed that interest rates would begin falling during that time, and a shorter fix would allow them to switch to a cheaper rate more quickly. 

There were also some borrowers going for tracker mortgages that typically come without early repayment charges and track the base rate. 

However, confidence that rates will fall drastically any time soon appears to be dissipating, meaning that increasing numbers are now choosing to lock in their rate for five years, according to mortgage broker L&C. 

Choosing what length to fix for depends on what you think will happen to interest rates during that time, and what your personal circumstances are – for example if you will need to move. 

Those opting for a two-year fix are essentially hedging their bets on interest rates falling over the next couple of years. 

They’ll be banking on the expectation that once inflation subsides, interest rates will come down.

Fixed rates of any length also offer borrowers certainty over what their payments will be from month-to-month.

If rates do begin falling, a tracker mortgage without an early repayment charge could put borrowers in a position to take advantage.

However, for all the potential benefit, a tracker product will also leave people vulnerable to further base rate hikes in the meantime.

Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.

‘For those not sure whether to fix for two or five years, a two-year fix looks the right call with interest rates expected to start coming down this autumn but for those who can’t afford to be wrong, a five-year fix or even longer is worth considering,’ adds Mark Harris of SPF Private Clients.

‘There are also some flexible deals worth taking a look at such as Virgin’s five-year fix which only has two years of early repayment charges – this gives the borrower the affordability and security benefits of the longer term but also the flexibility to exit into a (hopefully) better rate with no penalties after two years. 

‘Or trackers with no early repayment charges, enabling you to move onto a fix should rates become more palatable.’