A MAJOR lender has cut mortgages rates for first-time buyers, despite the Bank of England’s decision to hold interest rates yesterday.
The Monetary Policy Committee (MPC), responsible for setting the Bank of England‘s base rate, voted to hold the base rate steady at 4.5% during their meeting yesterday afternoon.
1
The base rate serves as a benchmark for lenders when determining the interest rates offered on savings accounts and borrowing products, including mortgages.
Nevertheless, Nationwide has reduced its mortgage rates by up to 0.26 percentage points as of today, making it possible for some borrowers to secure a mortgage with an interest rate below 5%, even with just a 5% deposit.
The rate cuts apply to two, three, and five-year fixed-rate deals for first-time buyers, home movers, and those looking to remortgage.
For example, a two-year first-time buyer fix at 95% LTV (requiring a 5% deposit) with no fee is now 5.30%, down from 5.56%.
New home movers opting for Nationwide mortgages have also seen rate reductions of up to 0.21 percentage points across two, three, and five-year fixed deals.
Existing Nationwide customers who are relocating can also take advantage of similar cuts.
For instance, a two-year fix at 90% loan-to-value (LTV) – requiring just a 10% deposit – with no fee is now available at a rate of 4.99%.
Meanwhile, a five-year fix at 90% LTV, which comes with a £999 fee, has been reduced to 4.57%.
In addition, rate reductions of up to 0.12 percentage points are now offered on other fixed-rate products.
A two-year fix at 85% LTV with no fee is currently priced at 5.15%.
Nicholas Mendes, mortgage technical adviser at John Charcol, has suggested that further rate cuts from other lenders could be on the horizon.
This expectation stems from the stability, or even decline, in swap rates — a key measure of future borrowing costs.
With swap rates holding steady, lenders have greater flexibility to introduce more competitive fixed-rate deals.
He said: “Nationwide’s decision to cut mortgage rates, despite the Bank of England holding the base rate steady, reflects growing confidence in the direction of travel for interest rates more broadly.
“Markets are increasingly pricing in multiple rate cuts from the Bank of England over the course of the year, with many expecting the next move as early as May.
“While the Bank has remained cautious in its messaging, there’s a clear sense that the tightening cycle has peaked, and attention is turning towards when — not if — monetary policy will begin to ease.
“Against that backdrop, lenders like Nationwide are responding to steady swap rates by quickly passing on reductions in their mortgage pricing, positioning themselves competitively ahead of what is traditionally a busier spring period for the housing market.”
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.
Earlier this month, both Barclays and Nationwide surprised the mortgage market by introducing sub-4% mortgage deals for certain customers.
While mortgage rates briefly fell below 4% earlier this year, such deals were swiftly withdrawn as inflationary pressures began to mount.
Despite this, Barclays is still offering a market-leading 3.96% rate on its Green Home mortgage.
This deal is available to customers purchasing an energy-efficient new-build property directly from the builder or developer.
To qualify for this deal, borrowers must have a 60% loan-to-value (LTV) ratio and pay a £899 product fee.
The LTV represents the proportion of the property’s value being borrowed.
So, if a property is valued at £250,000, a mortgage of £150,000 would equate to a 60% LTV.
Existing Nationwide customers can also benefit from a “Switcher Mortgage,” offering a competitive 3.99% rate for a five-year term.
This deal similarly requires a 60% LTV and carries a £999 product fee.
Additionally, Nationwide is offering a 3.99% rate on a five-year fixed deal to borrowers looking to remortgage with a 60% LTV.
However, this offer comes with a £1,499 product fee.
That deal is subject to a £1,499 fee.
What’s next for mortgage rates?
Stagnating economic growth, coupled with rising inflation, has prompted money markets to predict that the Bank of England will take a more measured approach to reducing interest rates than previously anticipated.
The Bank of England now expects inflation to peak at 3.7% later this summer, higher than earlier estimates.
This upward revision is partly attributed to the impact of policies introduced in the October 2024 Budget.
Specifically, measures within the budget have contributed to a rise in cost inflation, pushing the overall inflation figure higher.
This presents a complex situation for the Bank of England, as rising inflation typically warrants higher interest rates to curb spending and stabilise prices.
However, although mortgage rates are influenced by the Bank of England’s base rate, they aren’t directly tied to it.
Instead, they depend on swap rates, which follow government bond yields.
Markets still expect the Bank to implement three rate cuts in total, ultimately bringing the base rate down to 4%.
At the moment, the average two-year fixed-rate deal is 5.33%, while the average five-year fixed rate is 5.22%, according to moneyfactscompare.co.uk.
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.