Mortgage rates are tipped to fall below 4pc as soon as next week, after swap rates fell to levels not seen since May.
Swap rates, a leading indicator for mortgage rates, fell to 3.99pc on Tuesday before dipping further – to 3.94pc – on Thursday.
On Friday, the average rate for two-year fixed mortgages also dropped below 6pc for the first time since mid-June, according to Moneyfacts.
Major banks including Nationwide, Santander and Halifax all cut their fixed rates on Friday, in what some brokers have called “the next chapter of the mortgage rate war”.
Nationwide slashed its fixed rate products by up 0.40 percentage points, with rates starting from 4.19pc. Meanwhile, in emails sent to brokers and seen by The Telegraph, Santander and Halifax said they were reducing rates by up to 0.32 and 0.25 percentage points respectively.
These cuts follow First Direct’s decision earlier this week to shave up to 0.45 percentage points off its fixed rates.
Across the top six lenders, the average five-year fix rate sat at 4.84pc on December 5 – according to Uswitch.
Despite the Bank of England’s “tough talk on rates”, economists anticipate cuts to the Bank Rate next year – earlier than initially expected.
Andrew Goodwin, of Oxford Economics, said the recent drop in swap rates is largely down to global factors. Markets, he said, appear increasingly confident that inflation is coming under control across the world and expect central banks to react by cutting interest rates in 2024.
He added: “The US is obviously central to these moves, but markets also think the Bank of England will move in that direction, despite its recent rhetoric.
“Indeed, we think that the central bank’s recent tough talk on rates staying high for longer is partly an attempt to prevent financial conditions loosening too much while inflation and wage growth are still too high.”
Some brokers anticipate five-year fixed deals priced at 3.99pc to land as soon as next week, while others predict a rate below 4pc is still a month or so out of reach.
Gary Bush, of Potters Bar-based broker Mortgage Shop, said five-year fixed rates below 4pc will take us into the next round of the “mortgage lender fixed rate war”.
He added: “We should expect to see the first lenders to announce new exciting deals as soon as Monday. There is a very much-needed enthusiasm returning from property buyers and movers.”
Aaron Strutt, of brokerage Trinity Financial, said there were murmurings in some major banks that 3.99pc five-year fixes will reappear “over the coming months”.
After offering high rates for so long, Mr Strutt said lenders are doing more to make their phones ring again – including offering ‘loss leading’ products where the profit margins are very tight.
He added: “They are concentrating on making their property purchase rates cheaper which means many remortgaging customers will pay slightly more. But the price war is intensifying and is likely to pick up again in January.
“Lenders have been consistently undercutting themselves for weeks now, with some banks making price improvements twice a week.”
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2023-12-08 10:07:00Z
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