BARCLAYS, Nationwide, Skipton Building Society and TSB have all slashed mortgage rates this week, kicking off a price war among high street lenders.
More and more deals are dipping below 4%, offering families huge savings on their monthly payments.
Nationwide kicked off the cuts, reducing rates by up to 0.20 percentage points.
Customers can now get fixed deals starting at 3.84% if they’re switching mortgages or borrowing more, and 4.19% if they’re a first-time buyer.
Homeowners remortgaging can secure a two-year fixed rate at 4.44% with a £999 fee, while switcher deals now start at 3.84%.
Barclays quickly jumped into the rate-cut battle, offering deals as low as 3.84%, giving homeowners a chance to lower their monthly payments.
The two-year fixed remortgaging rate at 75% loan-to-value (LTV) has been reduced from 4.14% to 3.99%, with a £999 fee.
Meanwhile, the two-year fixed rate for homebuyers has dropped from 3.91% to 3.84% at 60% LTV, also with a £999 fee.
LTV, or loan-to-value, is the percentage of a property’s price you’re borrowing. The rest is covered by your deposit.
The average two-year fixed mortgage rate has dropped from its peak of 6.86% in July 2023 to 5.05% yesterday, according to Moneyfactscompare.co.uk.
For someone with a £250,000 mortgage, dropping from a rate of 5.05% to 3.84% means saving around £172 a month – or £4,128 over two years.
TSB lowered its mortgage rates yesterday, making it more affordable for first-time buyers and movers borrowing up to 90% of their property’s value.
Remortgage rates for two- and five-year fixed deals up to 75% LTV also dropped by up to 0.25%, offering homeowners better savings.
Skipton Building Society also joined the competition, introducing deals below 4%, giving buyers and homeowners even more choices to save.
These reductions come as swap rates, which banks use to price mortgages, have fallen, giving lenders room to offer cheaper deals.
Justin Moy, Managing Director at EHF Mortgages, said: “The sub-4% mortgage race is back on as lenders battle for market share.
“Now is an ideal time to be grabbing a new deal if yours is due to renew in 2025.
“Competition is seriously heating up as lenders stick their elbows out and look to win business on rates.
“But as we know, things can turn in the blink of an eye, so borrower beware.”
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
What’s next for mortgage rates?
Mortgage rates are likely to keep falling as the Bank of England prepares to lower interest rates next month.
Sanjay Raja, Deutsche Bank’s chief economist, said a rate cut on August 7 is “almost certain”, after UK GDP fell by 0.1% in May.
The Bank of England usually cuts rates to stimulate economic growth and put more money into the economy.
Lower interest rates usually mean cheaper mortgages.
Tracker and standard variable mortgage holders often see lower payments within days of a base rate cut.
However, fixed mortgage rates don’t directly follow the Bank of England‘s base rate.
Instead, they rely more on swap rates, which reflect expectations of future base rate changes.
Money markets expect base rate cuts in August and possibly November, which could reduce it from the current 4.25% to 3.75%.
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.
