Mortgage rates have dropped, and there are currently some offers with rates below 4%
Whether you're a buy-to-let landlord, remortgaging, or purchasing a home, we examine the mortgage rate outlook for this year.
Following the widely anticipated reduction in the Bank of England base rate, mortgage rates have dropped, and three lenders are currently offering the first sub-4 percent offers of the year.
Last week (February 13), Santander offered two-year and five-year fixed deals at 3.99 percent, which are accessible to both homebuyers and remortgaging customers. Be aware that they have a high cost1,999 for the purchase and 1,749 for the remortgage, respectively.
But experts warn that customers who want the lowest mortgage rates should move fast in case they are also withdrawn, as the bank is pulling its five-year fix at the end of today (February 21). Santander's two-year contract with 3.99 percent is still in effect.
According to David Hollingworth, associate director at broker LandC Mortgages, Santander had canceled its deal "citing an increase in market rates as the driver" and the cheapest mortgage deals "could be under threat" due to the unexpected spike in inflation, which went from 2.5 percent in December to 3 percent in January.
He continues, saying that while there is no need to panic, borrowers who have been thinking about a new loan might want to make a decision as soon as possible in case interest rates move further.
Additionally, Barclays has announced a five-year fixed mortgage at 3point 99 percent. There is a product fee of 899 and a 40% deposit required. Premier customers and those purchasing energy-efficient homes are the only ones eligible.
For its Club Lloyds banking clients, Lloyds offers a remortgage rate of 3point 98 percent.
For the first time since last November, high-street lenders' rates have fallen below 4 percent.
The Bank's decision earlier this month, which lowered interest rates from 4point 75 percent to 4point 5 percent, has caused many mortgage lenders to lower their rates.
Barclays has slashed rates on several of its mortgage deals by as much as 0.36%. For instance, its loan-to-value LTV of 85 percent, which was represented by its 5point 33 percent Great Escape 5 Year Fixed 0 product fee, has decreased to 4point 97 percent.
TSB also lowered mortgage rates on a few two-year and five-year contracts by as much as 0.15%.
Last week, NatWest reduced some of its mortgage rates by as much as 0.36%.
Halifax, HSBC, Virgin Money, Coventry Building Society, and Clydesdale Bank are among the other lenders that have reduced mortgage rates in the last week or so. In an intriguing turn of events, Halifax is also raising the rates for its tracker products by as much as 0.18%. This is likely due to the fact that trackers are now more popular as analysts anticipate further interest rate cuts this year.
Some of Halifax's and Nationwide's fixed rates will also be reduced today, February 21.
Even though the interest rate reduction and the new 3.99 percent offers are welcome news for borrowers, mortgage rates might only gradually decline.
That's because swap rates, which are impacted by factors like bond yields, inflation, and economic growth data, also have an impact on mortgage rates. Hollingworth stated that the January inflation data, which was made public this week, might "seriously drag on any further momentum building for fixed rate mortgage cuts."
"With margins so tight for lenders, it could at best see fixed rates holding or at worst apply some upward pressure," he continues.
A spike in the yields on government bonds (gilt) caused some mortgage lenders to raise their rates last month, which in turn caused swap rates to rise.
The two- to five-year swap rates are currently at about 4 percent, "representing a notable decline compared to this time last month," according to Nicholas Mendes, mortgage technical manager at the broker John Charcol.
We examine the UK mortgage rate outlook in greater detail this year.
Which lenders are lowering their mortgage rates?
Several fixed mortgage rates have been lowered this month (February) by Halifax, HSBC, Barclays, Coventry Building Society, NatWest, Virgin Money, and Clydesdale Bank.
On February 4, Barclays lowered some of its two-year and five-year offers for real estate buyers and remortgage clients. On February 13, a second round of cuts went into effect.
Virgin Money has reduced rates on some of its buy-to-let, product transfer, and purchase agreements by as much as 0.1 percent.
The rates for first-time buyers, home movers, remortgages, and buy-to-let were reduced by HSBC on February 6. However, it also caused some mortgage rates to increase, highlighting the unpredictability of the current situation.
The rate cut by the Bank of England will automatically lower your mortgage rate if you are on a base rate tracker.
Payments for a borrower with a 200,000 mortgage with a 25-year repayment period could decrease by 29 per month, according to L&C Mortgages.
Although it's not a given, lenders may also pass improvements through to standard variable rates (SVRs).
Following this month's base rate cut, Santander announced that it would lower its SVR by 0 points 25 points to 6 points 75 percent on March 3.
What is the mortgage rate forecast?
The markets anticipate that the Bank of England will lower interest rates two or three more times this year. Although this should help mortgage rates, experts advise borrowers to "temper expectations," particularly in the near future.
"The Bank rate reduction is likely to catalyze increased market activity, potentially offering first-time buyers a more favorable entry point," states Marylen Edwards, director of mortgages at specialist lender MT Finance. Nonetheless, a measured and nuanced market response is anticipated.
"Although the cut is a positive development, borrowers should not get ahead of themselves because mortgage rates might not show the full impact of the base rate cut right away.
A significant change in the outlook is required for mortgage rates to drop significantly, according to Simon Gammon, managing partner at Knight Frank Finance.
"We would anticipate that lenders would lower mortgage rates very rapidly when that time comes," he continues. Following two years of economic uncertainty and slow activity, the banks are keen to regain ground.
According to Rachel Springall, a finance specialist at Moneyfactscompare . co . uk, fixed mortgage rates increased last month as a result of swap rate volatility. Actually, on February 1st, the average five-year fixed rate reached a six-month high of 5.32 percent. The percentage of two-year agreements was 5:52.
But now they have decreased: as of February 21, the average two-year fix is 5.39 percent, and the average five-year fix is 5.22 percent.
According to Springall, "interest rate pricing is still uncertain, but the Bank of England's Monetary Policy Committee may be restrained from making significant cuts this year by sticky inflation and broader economic uncertainty. The government wants lenders to do more to spur economic growth, so there will be many incentives for them to attract new business in 2025. This is why there is a debate about loosening lending regulations.
Remember, the mortgage rate is only one part of the deal. Borrowers should be on the lookout for additional mortgage expenses because some offers come with hefty fees that might cancel out any savings when compared to other offers that have lower fees but higher rates.
Should your mortgage be fixed?
We can learn from the past two years of fluctuations that forecasting mortgage rate declines is not a precise science. So, should you choose another fixed deal if your current fixed mortgage rate is one of the 800,000 that are expected to expire this year?
According to Hollingworth, homeowners ought to begin examining rates a few months prior to the completion of their repairs. You can protect yourself from future rate increases by locking in a rate now. If rates drop before your fix expires, you can move to the lower rate.
Check the window for locking in a new deal again, though, because some lenders have shortened theirs to just three or four months.
Resolving your mortgage will bring you comfort. But if you're willing to take a chance and think interest rates will drop over the course of your next mortgage agreement, you might want to look into a base rate tracker.
How about variable rates for mortgages?
About 2.2 million homeowners have variable-rate mortgages, which are based on the base rate set by the Bank of England. The average standard variable rate (SVR) is a startling 7:78 percent. Five percent is the average cost of a two-year tracker.
Now would be a good time for those on a high SVR to move to a fixed rate. The money they save by getting rid of their pricey SVR sooner may make it worthwhile, even if fixed rates decline later this year.
"Borrowers would be wise to refinance their deal as soon as possible because it would be expensive to fall onto a revert rate," says Springall. The average SVR is currently 7.78 percent, which is more than 5% higher than the 2.74 percent that those leaving the average five-year fixed deal from January 2020 would have been charged.
How about rates for buy-to-let properties?
Today, the average two-year buy-to-let mortgage rate is 5.26 percent, according to Moneyfactscompare . co . uk. On average, the buy-to-let fix for five years is 5.22 percent.
Considering how high rates have been in recent years, these rates appear to be fairly competitive. In the summer of 2023, buy-to-let mortgage rates were approaching 7%.
According to research by mortgage adviser Alexander Hall, buy-to-let investors also have a wider selection of mortgage products, with about 2,220 products currently available, up 12.9 percent over the previous year.
The new 5 percent stamp duty surcharge and less generous mortgage interest tax relief will be offset by a drop in mortgage rates, which is what landlords are hoping for this year.
As landlords are being forced to sell due to financial strain, a record number of previously rented homes are being listed for sale.
There is mortgage support available.
Mortgage rates have significantly increased since many people's last remortgage. Rates as low as 1% or 2% will be eliminated for millions of homeowners.
The government's mortgage charter has been ratified by lenders that account for 90% of the mortgage market, which is good news if you're having trouble making your mortgage payments. These consist of building societies like Nationwide, Leeds, and Skipton as well as large banks like Halifax, HSBC, and Santander.
The charter consists of a number of assistance programs designed to assist people who are struggling. For six months, borrowers will have the option to temporarily modify their mortgage in order to give themselves some breathing room. For example, they can choose to transfer to interest-only payments or extend their mortgage term in order to lower their monthly payments. Consumers can get in touch with their lender and choose to return to their original term within six months.
Since its introduction in June 2023, the mortgage charter has benefited approximately 11.4 million mortgages, according to data from the City watchdog.
For those who have fallen behind on their payments, the start of the repossession process is delayed by a year. All lenders have a number of procedures in place for clients who are having problems, regardless of whether they have ratified the charter.
Should my mortgage be overpaid?
In order to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate, it may be wise to overpay your mortgage if you have some extra money and your rate is low.
Our mortgage overpayment calculator helps you determine whether it is worth it by displaying how your monthly repayments will change.
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