Mortgage rates fall in ‘fierce price war’
Mortgage rates have fallen despite the Bank of England raising the Bank Rate last week, as experts said a "fierce price war" had broken out between lenders.
Policymakers on Threadneedle Street increased the Bank Rate by 0.5 percentage points to 4pc on Thursday, immediately raising the cost of borrowing for households on variable and tracker mortgages.
But borrowers searching for fixed-rate mortgages have seen costs fall thanks to an escalating price war between banks and building societies competing for new business.
The average two-year fixed-rate mortgage has dropped from 5.44pc to 5.43pc since Thursday, and the average five-year fix has fallen from 5.2pc to 5.15pc, according to analyst Moneyfacts.
Borrowers on tracker deals have not been so lucky. The average two-year tracker rate has jumped from 4.39pc to 4.74pc since Thursday, according to Moneyfacts.
Fixed rates are expected to fall further in the coming weeks – with the best deals forecast to drop below 4pc – as competition heats up between banks keen to hit lending targets after a volatile end to 2022.
Tessa Skot, of mortgage broker Better, said: “After a very weak December for lenders, the competition to attract customers is now fierce and that means there are good deals to be had.
“That competition, coupled with growing confidence that an end is in sight for interest rate rises, is good news for anyone seeking a mortgage or remortgage.
“Borrowers are in a much stronger position than they have been for some time, but only if they shop around.”
The price war has already knocked thousands of pounds off the cost of borrowing since mortgage rates peaked in November last year.
The average two-year fix has fallen from a high of 6.65pc to 5.43pc today – a saving of £153 in monthly interest, or £1,836 a year, for a typical borrower with a £150,000 loan.
Craig Fish, of broker Lodestone Mortgages and Protection, said lenders were rescuing fixed rates on a daily basis.
Mr Fish said: “When one lender announces a rate reduction, the others tend to follow. The rate war is well and truly on and it's now a race to see who is going to be the first to offer five-year fixed rates below 4pc.”