Two weeks on from the Bank of England cutting the base rate, a handful of major lenders have reduced the cost of their mortgage deals.
Two providers have even launched sub-4% mortgages, although these eye-catching rates may not remain on the market for very long.
Read on to discover which providers are cutting rates and for advice on choosing the right fixed term for your mortgage.
Sub-4% mortgages are back
Average rates on two-year and five-year deals have dropped by around 0.1% since the base rate cut. This will be welcome news for borrowers, after rates rose slightly during January.
The headline-grabbing news is the return of sub-4% mortgages, with Barclays and Santander both launching deals with initial rates of 3.99%.
Santander offered 3.99% on two-year and five-year deals up to 60% loan-to-value (LTV), but the five-year deal has already been withdrawn after just 10 days.
It says this is down to an increase in funding costs, but it’s often the case that banks withdraw these kinds of deals quickly after a deluge of applications.
Barclays is offering 3.99% on a five-year fix at up to 60% LTV, but it’s only available to people with a Barclays Premier account, which requires an annual income of £75,000 or savings of £100,000.
Other providers have made smaller cuts to their rates, including Halifax, Nationwide, NatWest and Virgin Money.
Do the best rates really offer the best value?
David Hollingworth, from mortgage broker L&C Mortgages, says: ‘Lower rates are certainly a positive for borrowers and these headline rates are bound to catch the eye. However, Santander’s deal comes with big upfront fees of £1,999 for purchasers and £1,749 for people remortgaging.
‘Borrowers need to keep their wits about them and do their sums, to make sure that they’re getting the best overall value. Those with large loans will have the most to gain from a low rate, whereas those with smaller mortgages are likely to be better served by a lower or no upfront fee and a slightly higher interest rate.
‘Lenders will generally have a range of rate/fee combinations on offer, so borrowers can tailor the deal to their own circumstances.’
The cheapest mortgage rates
The best rates currently available vary significantly depending on the size of your deposit and LTV.
For a two-year fix, market-leading rates range from 4.23% (at 60% LTV) to 5.45% (at 95% LTV). For a five-year fix, the best rates range from 3.99% (60% LTV) to 5.11% (95% LTV).
When comparing deals, you might want to take advice from a mortgage broker. A broker can assess key features such as interest rates, fees and incentives to find the right loan for your needs.
- Find out more: best mortgage deals for February 2024.
Will the base rate fall again in March?
On 6 February, the base rate dropped from 4.75% to 4.5% after a 5-2 vote from the Bank of England’s Monetary Policy Committee (MPC). Two members voted for a bigger cut of 0.5 percentage points.
This month’s cut was widely expected after a fall in inflation, and rate cuts by the European Central Bank and United States Federal Reserve.
However, the Bank of England’s chief economist, Huw Pill, has poured cold water on the prospect of a fiurther cuts being imminent, stating that the MPC will adopt a ‘gradual and careful approach’ to rate drops.
Given this cautious approach and the recent rise in inflation, it’s unlikely that the Bank will cut the rate again at its next meeting on 20 March.
- Find out more: Bank of England base rate and your mortgage.
How does the fixed term impact repayments?
One of the biggest decisions when choosing a mortgage is whether to fix for two or five years.
Borrowers are currently favouring two-year deals, according to Moneyfacts, as many hope that rates will have fallen by the time they come to remortgage.
We’ve analysed estimated monthly costs of the cheapest two-year and five-year fixed-rate mortgage at three LTV levels.
Our calculations assume you’re borrowing £250,000 over a 25-year term.
Using this scenario, a two-year fix is between £10 and £34 a month more expensive at 60% and 75% LTV, reflecting how closely rates are bunched together.
However, the difference jumps to £120 for a mortgage at 85% LTV, meaning borrowers with smaller deposits are currently facing more volatility in rates.
Factors to consider when choosing a fixed term
The events of the past few years have shown just how volatile the mortgage market can be.
Opting for a longer fixed term can provide stability, shielding you from market fluctuations.
However, if you’re comfortable with the associated risk, a two-year fix will give you the flexibility to search for a new deal sooner, which will be welcome if rates drop.
If you’re thinking of moving in the next few years, consider a shorter-term fix, as five-year deals usually come with early repayment charges.
Most lenders allow you to ‘port’ your mortgage to another property, but this process isn’t always cost effective and may require you to meet specific criteria.
You can find more advice in our recent story on choosing a fixed term.