Big lenders cut mortgage deals to below 4pc

mortgage rates
mortgage rates

Mortgage rates have fallen to the lowest level for six months as competition between banks intensifies.

Three big lenders are now offering mortgage deals of less than 4pc, with Co-op Bank, Santander and Barclays all cutting rates at the start of the week.

The Co-operative Bank has released a fixed-rate mortgage at 3.84pc, the cheapest deal since last summer. Santander now offers a five-year fixed-rate at 3.89pc, while Barclays has cut rates by up to 0.5 percentage points for those buying a home rather than remortgaging.

In addition Halifax has lowered its rates and now offers five-year loans starting at 4.28pc.

Banks are competing for business at the start of the year and responding to “swap rates” – market expectations of rates – amid hopes the Bank of England will begin cutting interest rates this year, experts said.

Nick Mendes, of mortgage brokers John Charcoal, said: “The fact we are still seeing swaps go up and rates go down shows how hungry lenders are to make up for lost time, possibly a lost year, and they are prepared to cut their margins as low as possible.”

In December lenders were gearing up to reduce rates in order to capitalise on an expected jump in housing market activity after a sluggish year in 2023.

Generation H was the first lender to introduce a sub-4pc deal in that period, offering a 3.94pc five-year fixed rate for those with a 40pc deposit.

HSBC became the first major high-street lender to offer a mortgage deal with a rate below 4pc at the start of this year, giving hope to millions of homeowners renegotiating loans.

They face remortgaging at a time when central interest rates stand at 5.25pc. This is up from the record low of 0.1pc during the pandemic.

Analysts are forecasting further rate cuts over the next two years.

In the last few days, however, swap rates – the main pricing mechanism for fixed-rate mortgages – are tracking up again raising questions about how long sub-4pc deals can remain on the market in the short term.

Mr Mendes said he is keeping an eye on how long the Co-op deal stays on the market if swap rates continue to rise and cut into lender margins

Chris Sykes, technical director at mortgage broker private finance said that the rates being offered by Co-op were almost “too good if anything.” He added that he did not think such rates would be around for long.

Yet, if there is a pause in rates falling in response to swap rates the longer term direction of travel is still expected to see sub-4pc rates become the new normal, Mr Mendes added.

He said: “If we do see a pause it will likely be a small hiccup rather than anything else.”

Average mortgage rates have fallen considerably over the past six weeks, according to data company Moneyfacts.

At the start of December the average five-year fixed rate was 5.65pc. Today it stands at 5.37pc.The drop would save a borrower £408 a year on a £200,000 mortgage on a 25-year term.

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