HOMEOWNERS could soon be breathing a sigh of relief as fixed-rate mortgages look set to fall below 4% in just a few weeks time.
It means those looking to secure a fixed rate mortgage in the coming months may be able to find more affordable deals.
Lenders have been slashing their fixed rates due to falling inflation, base rates pauses and reductions in swap rates.
This has lead to some experts predicting that five-year fixed mortgages could fall below 4% in the New Year.
The average 5-year fixed residential mortgage rate today is 5.58%, according to Moneyfacts. This is down from 5.59% yesterday.
It comes after The Bank of England (BoE) chose to keep its base rate at a steady 5.25% for a third time in a row.
The interest rate – which helps dictate mortgage rates from banks – had been set at 5.25% in previous meetings in September and November, following 14 consecutive increases.
The cost of borrowing was raised in a bid to tackle soaring inflation, which peaked at 11.1% last year, in order to bring it closer to the Bank’s 2% target rate.
The markets are now indicating that they expect the UK’s interest rate to drop below 4% by the end of next year.
Plus swap rates, which are used by lenders use to price mortgages, have been falling leading some lenders to cut their rates.
HSBC has become the most recent lender to announce further reductions to its mortgage rates.
Two and five-year fixed rates are being slashed for people with deposits of between 25% and 40%.
But the bank is yet to confirm exactly how much rates will drop to.
Nationwide previously announced a market-leading five-year fixed rate of 4.29% for those with a 40% deposit with a £999 fee
Plus, just last week, the average rate on a two-year fix dipped below 6% for the first time in nearly six months.
Karen Noye, mortgage expert at Quilter, said: “The level of competition between lenders has been heightened by the stall in mortgage transactions which has left them fighting for business.
“Fixed rate mortgage deals are based heavily on future market predictions, and many lenders have already been reducing their rates in recent weeks as a result.
“We are likely to see gradual, small changes as opposed to a significant fall, but lenders are updating their products very regularly at the moment and we are generally seeing reductions each time they do.”
But Karen warned that mortgage rates are still far higher than in recent years, and that those coming to the end of a fix soon are likely to face a jump in their monthly payments.
How can I get the best mortgage deal?
Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE rise, either when shopping for a new fixed deal or reverting to the standard variable rate (SVR).
But if you’re nearing the end of a fixed deal soon it’s worth looking now. You can lock in current deals sometimes up to six months before your current deal ends.
Fixed rates have historically been cheaper than SVRs, but that may not be the case now, so its worth comparing the costs, and how long you want to be locked in for.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also got to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on you mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it on to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.
