Huge relief for homeowners as mortgages could drop below 4% within weeks

Homeowners may be able to secure rates below four percent within weeks amid a mortgage price war, experts have said.

Lenders have been slashing their fixed rates due to falling inflation, base rates pauses and reductions in swap rates.

This has led to some experts predicting that five-year fixed mortgages could fall below four percent in the New Year.

TSB has slashed the cost of its home loans by up to 0.35 percentage points last week.

Aaron Strutt, of broker Trinity Financial, said: “I think we will see a five-year fixed rate deal at 3.99 per cent by the beginning of next year.”

The cuts come after the Bank of England base rate decision which saw the base rate held at 5.25 percent for the third time.

The cost of borrowing was raised in a bid to tackle soaring inflation, which peaked at 11.1 percent last year, in order to bring it closer to the Bank’s two percent target rate.

The markets are now indicating that they expect the UK’s interest rate to drop below four percent by the end of next year.

Bank of England governor Andrew Bailey said that, while Britain has ‘come a long way’ in the battle against inflation, there is still further to go.

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HSBC has become the most recent lender to announce further reductions to its mortgage rates.

Two and five-year fixed rates are being cut for people with deposits of between 25 percent and 40 percent.

But the bank is yet to confirm exactly how much rates will drop to.

Nationwide previously announced a market-leading five-year fixed rate of 4.29 percent for those with a 40 percent deposit with a £999 fee and the average rate on a two-year fix dipped below six percent for the first time in nearly six months, last week.

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Karen Noye, mortgage expert at Quilter, said: “The level of competition between lenders has been heightened by the stall in mortgage transactions which has left them fighting for business.

“Fixed rate mortgage deals are based heavily on future market predictions, and many lenders have already been reducing their rates in recent weeks as a result.

“We are likely to see gradual, small changes as opposed to a significant fall, but lenders are updating their products very regularly at the moment and we are generally seeing reductions each time they do.”

But Karen warned that mortgage rates are still far higher than in recent years, and that those coming to the end of a fix soon are likely to face a jump in their monthly payments.

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