Major lenders Santander and Barclays have launched mortgage deals with interest rates below four per cent for the first time since November, signaling increased competition in the mortgage market.
These new deals, announced earlier today, come as mortgage providers show growing confidence amid prospects of further Bank of England base rate cuts throughout 2025.
Last week, the central bank’s Monetary Policy Committee (MPC) voted seven-to-two to slash interest rates from 4.75 per cent to 4.5 per cent in a win for borrowers, especially for those navigating the property market.
The move marks a significant shift in the mortgage landscape, where the current average rate for a two-year fixed deal stands at 5.48 per cent, whilst five-year deals typically command 5.29 per cent.
“Borrowers have been crying out for better mortgage rates and we are starting to see them,” said Aaron Strutt, the product and communications director at broker Trinity Financial.
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Mortgage rates are dropping below four per cent with Santander and Barclays leading the charge
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However, these attractive sub-four per cent rates come with strict eligibility criteria, requiring borrowers to have a 40 per cent deposit, which may put them out of reach for many potential buyers, particularly first-time homeowners.
The deals may also include substantial fees, with borrowers being advised to carefully evaluate the overall value of the product to determine whether it is suitable for their circumstances.
“This is a positive injection to the mortgage market and when a big lender makes such a move, it can prompt its peers to follow suit with cuts of their own,” said Rachel Springall from Moneyfacts.
The return of such competitive rates could encourage other lenders to reduce their rates after a period of limited competition with their timing being particularly significant as an estimated 1.8 million fixed-rate mortgages are due to expire in 2025.
Mortgage prisoners have been saddled with hiked repayments GETTY Research by My Home Move Conveyancing suggests Britons homeowners could face substantial increases in their monthly payments when their current mortgage deals end.
The average homeowner could see monthly mortgage payments rise by £272, amounting to an annual increase of £3,273, which represents a 31 per cent increase in payments for those moving to a new two-year fixed deal.
Many of these borrowers secured low rates during the pandemic in 2020, when average rates were around 2.4 per cent, compared to current five-year fixed rates of 4.77 per cent.
Analysts, including Strutt, are reminding any mortgage holders up for renewal who have secured a new deal that it is “a good time to review and potentially swap to a better rate”.
Springall added: “It was only a matter of time for lenders to bring back sub-four per cent mortgages. The millions of mortgage borrowers looking to refinance this year need some good news.“
According to the Royal Institution of Chartered Surveyors (RICS), Britain’s housing market activity is expected to increase in coming months, after a flat start to the year.
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Governor Andrew Bailey has suggested more base rate cuts from the Bank of England are on the way
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Bank of England Governor Andrew Bailey has also indicated potential for further rate cuts, though decisions will be made “meeting by meeting” on the pace and extent.
Analysts are pricing in at least two more reductions to the base from rate from the central bank’s MPC members, which could see the cost of borrowing slip below four per cent.
Based on the latest figures, around 800,000 fixed-rate mortgage deals with interest rates of three per cent or below are expected to expire every year until the end of 2027.
The Bank of England’s next MPC to discuss the base rate is scheduled to take place on March 20.