NOW could be the best time to sort out your mortgage by locking into a fixed rate deal, experts have warned.
Lenders are slashing rates ahead of a widely expected cut to the Bank of England’s base rate next month. Here’s what you need to do now.
Inflation eased for the first time in five months this October, sparking hopes of an interest rate cut on December 18.
That’s because when inflation goes down, the base rate usually goes down as well in an attempt by the Bank of England to boost the economy by encouraging people to spend more.
If the base rate is cut, it could mean lower mortgage payments for homeowners.
That’s because the base rate impacts the interest rates banks offer on savings accounts and loans, including mortgages.
As a result, a number of major high street lenders have already been snipping mortgage rates.
Barclays slashed the rate of some of its fixed rate deals by up to 0.3%, while HSBC reduced the rates of its deals by up to 15%.
TSB reduced rates on selected fixed rate deals by 0.1%.
Meanwhile, Santander’s fixed rate deals have reached a three year low of 3.55%.
More than 40 lenders have cut fixed rates since the start of November, according to data from MoneyFacts.
Plus, the average rate for a two year fixed mortgage has fallen 4.94% to 4.88% over the course of this month.
Is NOW the right time to fix your mortgage?
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
It means your monthly repayments remain the same for the whole deal period. It also means you are protected from rate rises.
However, this swings both ways and you won’t benefit from any rate reductions if the Bank of England lowers its interest.
As rates fall, Rachel Springall, finance expert for MoneyFacts said now is an “ideal time for borrowers to snap up a new deal”.
“If the much-anticipated Budget address goes down well, we may well continue to see mortgage rates drop.
“Not only this, but an overhaul of property taxation could have a huge impact on the mortgage market.”
Nicholas Mendes, mortgage technical manager at John Charcol, said for anyone considering fixing or locking in a new deal, this is one of those “windows where the argument is strong”.
“Rates have been falling into the Budget and lenders are trying to get business on their books before year end.”
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.
He explained: “Two and five-year swap rates, which underpin fixed-rate mortgage pricing, are sitting around 3.51% to 3.65%, only a fraction above their one-month lows.
“The market is signalling that while the Bank of England may not cut base rate again this year, the next moves in 2026 are still expected to be downward.”
“Lenders are responding by trimming margins now rather than waiting for an official rate cut.”
Swap rates reflect what markets expect will happen to interest rates in the near future.
They’re determined by factors including weather events, inflation, wars, tariffs and supply chain issues.
Alice Haine, personal finance analyst at Bestinvest said: “Mortgage rates are highly competitive at the moment, but much will depend on the impact from the Budget.
Rachel Reeves will deliver her Budget tomorrow, with savers and homeowners expected to be targeted as she looks to plug an economic black hole.
“With so much uncertainty, those being offered competitive rates now might want to lock them in,” Alice added.
“Further mortgage rate changes before the Budget are unlikely and once a new mortgage is secured, you can still monitor the market and check for a better deal on your existing product until two weeks before the term starts.”
“Keep in touch with your broker, who can alert you to any rate improvements if they materialise.”
It’s possible for borrowers to start shopping around for a new mortgage as much as six months before the end of their current deal.
If your deal is due to end soon, David Hollingworth, associate director of communications at L&C mortgages said you should start the search three to four months before to “avoid falling onto an expensive standard variable rate”.
He added: “It can be tempting to hold off when rates are dropping but securing a rate shouldn’t stop borrowers reviewing again before completion and most lenders will enable a switch to a new rate if they do improve.”
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.