Lowest fixed rate mortgages are on the verge of falling below 4% as Halifax cuts rates

Five-year fixed-rate mortgages are on track to fall below 4 percent after Halifax cut interest rates on several of its deals today.

The mortgage lender is reducing its home loan offers aimed at home movers and first-time buyers by up to 0.22 percentage points.

Halifax followed in the footsteps of NatWest and TSB in announcing the cuts, which made similar changes yesterday.

Halifax now offers the lowest five-year fixed rate on the market, at 4.06 per cent and a fee of £1,099.

The offer is aimed at home buyers with a deposit of at least 40 per cent. It is slightly lower than the next best deal offered by Barclays, which was 4.09 per cent.

The average five-year fixed rate is 5.47 per cent, according to interest rate tracker Moneyfacts.

Someone taking out a £200,000 mortgage over a 25-year term would pay £1,062 a month with Halifax, compared with £1,225 on the market average.

Halifax has also cut its two-year fixed rates, meaning the lowest offer on the market is now below 4.5 per cent.

Once again, this option is reserved for those buying with the largest deposits. Their 4.46 per cent offer includes a £1,099 fee.

The next best rate on the market is once again Barclays at 4.52 per cent with an attached fee of £899.

How about better deals for people who refinance their mortgages?

Homeowners nearing the end of their current agreements may have noticed that the rates available to them are currently slightly higher than those available to buyers.

That said, lenders sometimes offer their best rates internally to existing customers in what is known as a product transfer. It would be wise to speak to a lender or broker to check.

Much like its offers aimed at home-movers, Halifax’s best refinance deals are aimed at homeowners with the highest amounts of equity.

Basically, this means that someone needs a mortgage that covers no more than 60 percent of the property’s market value.

Halifax’s best five-year fixed rate is 4.32 per cent with a fee of £999. The second lowest rate on the market.

And Halifax’s best two-year high equity homeowners’ solution is 4.67 per cent, with a fee of £999. This is the best deal currently on the market.

Those who need a mortgage to cover 75 percent of the value of a property can also get the best deals on the market with Haifax.

Its lowest five-year fixed rate with a loan-to-value ratio of 75 per cent is 4.43 per cent with a fee of £999 (second best) and its lowest two-year fixed rate is 4.77 per cent (third best).

What will happen to mortgage rates?

The current direction of mortgage rates may come as a surprise to some given that the Bank of England is now seen as more likely to make its first base rate cut in September, rather than August.

Markets are now pricing in a 25 per cent chance of a bank rate cut next month, with the conventional wisdom being that it will happen in September.

The Bank of England’s Monetary Policy Committee (MPC) is concerned about high service sector inflation and wage growth.

But even though interest rate cuts have been delayed, mortgage rates are already falling.

Before Halifax, NatWest, TSB, Barclays, Halifax, Nationwide, HSBC and Santander, among others, have cut their mortgage rates in recent weeks.

We won’t budge: Bank of England keeps base rate at 5.25% from August 2023

This is largely due to Sonia swaps, the benchmark used by banks and credit companies to price fixed-rate mortgages and savings transactions.

Sonia swaps essentially show what financial institutions believe the future holds for long-term interest rates and price them accordingly.

Mortgage lenders enter into interest rate swap agreements to protect themselves against the interest rate risk involved in providing fixed-rate mortgages.

Mark Harris, chief executive of mortgage brokerage firm SPF Private Clients, expects mortgage rates to continue to fall and believes we will soon see a five-year settlement below 4 percent.

“Most lenders have reduced their mortgage prices due to lower swaps and in an effort to generate more business,” Harris said.

‘We expect mortgage rates to continue to decline slowly, with five-year fixes beginning at three-year rates before long.

‘However, it does not seem that we can expect drastic reductions, as swaps have been stagnant in recent days.

‘Trying to predict what will happen to rates is always difficult and you need to decide what to do based on your own circumstances.’

How long should I lock in my mortgage?

One of the biggest decisions facing some homebuyers and people refinancing their mortgages right now is how long they should wait to fix it, if at all.

Last year, most borrowers opted for a two-year term, believing that interest rates would start to fall during that time and that a shorter term would allow them to switch to a cheaper rate more quickly.

There were also some borrowers who opted for adjustable-rate mortgages, which typically have no prepayment fees and follow the base rate.

However, confidence that rates will fall sharply in the near term appears to be fading, meaning more people are opting to lock in their rate for five years, according to mortgage broker L&C.

Mortgage expert: Mark Harris, CEO of mortgage broker SPF Private Clients

Choosing your loan term will depend on what you think interest rates will happen to during that time and your personal circumstances (for example, whether you will need to move).

Those who opt for a two-year fixed term are essentially hedging their bets on a fall in interest rates in the coming years.

They will rely on the expectation that once inflation declines, interest rates will fall.

Fixed rates of any duration also offer borrowers certainty about what their payments will be from month to month.

If rates begin to fall, a no-prepayment-fee adjustable-rate mortgage could put borrowers in a position to take advantage.

However, for all the potential benefits, a tracking product will also leave people vulnerable to further base rate increases in the interim.

Whatever type of mortgage is right for your circumstances, shopping around and talking to a good mortgage broker is a smart move.

“For those unsure whether to lock in for two or five years, a two-year fix seems the right move as interest rates are expected to start coming down this autumn, but for those who can’t afford to get it wrong, a five-year fix or even longer is worth considering,” adds Mark Harris of SPF Private Clients.

‘There are also some flexible deals worth considering, such as Virgin’s five-year solution, which only has two years of prepayment charges – this gives the borrower the affordability and security benefits of the longer term, but also the flexibility to exit at a (hopefully) better rate without penalties after two years.

‘Or trackers with no prepayment fees, allowing you to move to a solution if rates become more acceptable.’