The average rate on a two-year fixed mortgage and a five-year fixed mortgage have tumbled to a seven-month low as lenders compete for new business.
Major lenders, such as Halifax and HSBC, have kicked off 2024 with significant rate cuts. For example, Halifax has slashed the rates on its remortgage range by up to 0.83 percentage points, while its product transfer range has had rates reduced by 0.92 points.
It means the average two-year fixed mortgage rate across the whole market is now 5.83%, while the average five-year fix is 5.43%.
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Financial information service Moneyfacts told MoneyWeek that the last time mortgage rates were at similar levels was back in June 2023, at 5.49% for a two-year deal and 5.17% for a five-year fix.
Mortgage lenders had already started cutting rates at the tail-end of 2023. Figures from Moneyfacts reveal that average fixed rates fell for a fourth straight month in December. And now rates have dropped even further, with experts saying home buyers and remortgage customers could benefit from a mortgage price war.
Leeds Building Society, Bluestone Mortgages and Generation H have also announced big rate cuts this year.
The improving situation with inflation has played a part in the mortgage developments. Inflation has continued to drop, with the latest official figures showing that the consumer price index for the 12 months to November dropped to 3.9%, from 4.6% the month before.
This belief that inflation has peaked has led to the Bank of England halting its increases to the base rate, with the rate frozen at 5.25% for three successive decisions. Economists are expecting the BoE to start cutting interest rates this year, possibly in the spring or summer.
However, average mortgage rates are still north of 5%, far higher than those seen in the past decade.
Borrowers who are still on cheap fixed-rate mortgages could get a big shock when they remortgage: data from the Financial Conduct Authority shows that nearly 1.4 million mortgage deals are set to end in 2024, forcing homeowners to pay £200 more on average in monthly payments.
Mortgage lenders cut rates
Mortgage lenders have announced further rate cuts, due to predictions that the Bank of England base rate could start to fall in the first half of this year.
HSBC has reduced rates on its residential mortgage range by up to 1 percentage point (0.4 points on average), with a number of its rates below 4% for the first time since April 2023.
The bank’s lowest rate is now 3.89% (for existing customers moving to a five-year fixed rate at 60% loan-to-value with £999 fee).
Halifax has also lowered its mortgage prices, with some rates dropping by almost 1 percentage point. Its two-year fixed-rate range for remortgagers now starts at 4.68% with a £999 fee.
Meanwhile, Leeds BS has started the New Year in the same fashion, trimming its fixed-rate deals by up to 0.49 percentage points. Its range now includes a two-year fixed rate for borrowers with 25% equity at 4.6% with a £999 fee.
Generation H has cut rates on its products by up to 0.67 percentage points, while Bluestone Mortgages has reduced the cost of its home loans by up to 0.23 points.
These cuts follow on from reductions introduced at the end of 2023 by lenders including Santander, HSBC and Nationwide Building Society. As a result, there are now a host of lenders offering rates below 5%, an important development given that back in November no mortgage lender offered fixed rates below this level.
So, does this mean mortgage rates are firmly on a downward trend – and what sort of rates could we see in the future?
Will mortgage rates come down further?
These cuts are good news for mortgage holders, but “this isn’t going to usher in an era of super-low rates”, says Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown.
“However, it will be enough of a shift to make a material difference to remortgagers who were dreading the hunt to find a new deal – and some buyers who had been priced out of the market.”
Nonetheless, there is an expectation among mortgage brokers that further cuts will be on the way. Some have suggested that with Halifax making such statement cuts, it is only a matter of time before their rivals follow suit with similarly large reductions.
The fact that swap rates ‒ which play a major part in the pricing of fixed-rate mortgages ‒ have been on a steady decline recently gives lenders more room for reducing the cost of their products.
What about variable mortgage rates?
About 2.2 million homeowners are on variable-rate mortgages, which are tied to the BoE’s base rate.
The average standard variable rate (SVR) is an eye-watering 8.18%.
Those who have been on a variable rate waiting for a good time to fix might be wise to do it now, says Coles. “You will need to be comfortable with watching fixed rates [potentially] fall further this year, but you will have the certainty of a fix at a lower rate than we’ve seen for months.”
What about buy-to-let rates?
Buy-to-let mortgage rates are slightly more expensive than deals for homeowners. Last summer, they were pushing 7%. According to Moneyfacts, the average two-year buy-to-let mortgage rate was 6.97% on 25 July, while the average five-year rate was 6.82%.
They have thankfully come down from these sky-high levels, with the average two-year fix falling to 5.87% while the average five-year deal stands at 5.84%.
Lenders such as HSBC and LendInvest have trimmed their rates this month. HSBC’s buy-to-let rates are now under 5.5% for the first time since June 2023, while Lendinvest has cut rates on its buy-to-let range by up to 0.8 percentage points.
However, rates remain high relative to previous years. High buy-to-let mortgage rates are perhaps the final nail in the coffin for landlords, leading many to sell their properties. The number of homes in the UK available to rent is currently at a 14-year low.
Mortgage support available
Despite mortgage rates starting to fall, they remain very high, and much higher than when many people would have last remortgaged. Millions of homeowners remortgaged last year or will have to do so this year – many of whom will be coming off rates as low as 1% or 2%.
If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.
The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.
Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments.
Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties.
Should I overpay my mortgage?
If you’ve got some spare cash, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a much higher rate.
Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.
