Two major lenders, Santander and Barclays, launched mortgage deals on Thursday with interest rates below 4%, marking a significant shift in the mortgage market as competition intensifies.
The prospect of further base rate cuts by the Bank of England has encouraged lenders to lower their rates, offering borrowers better deals. However, these sub-4% mortgages will not be available to all customers and may come with substantial fees.
The return of such competitive rates could prompt other lenders to follow suit, reviving competition in a market that has been relatively stagnant in recent months. Mortgage deals with rates below 4% have not been seen since November.
Signs of a broader trend
Currently, the average rate on a two-year fixed mortgage stands at 5.48%, while the typical rate for a five-year fixed deal is 5.29%, according to data from Moneyfacts.
“Borrowers have been crying out for better mortgage rates, and we are finally starting to see them,” said Aaron Strutt, of mortgage broker Trinity Financial. “If your mortgage is due for renewal soon and you’ve already locked in a deal, it might be worth reviewing your options and switching to a better rate.”
Is now the right time to fix?
Most homeowners in the UK opt for fixed-rate mortgages, meaning their monthly repayments remain unchanged for a set period, typically two or five years. Once the fixed term expires, they must choose a new deal, often at a different rate.
Over the next three years, approximately 800,000 fixed-rate mortgages—many with interest rates of 3% or lower—will expire annually. This means many homeowners could face higher monthly repayments upon renewal, though the latest rate cuts suggest some relief may be on the horizon.
Bank of England Governor Andrew Bailey has indicated that further base rate cuts are likely, though the timing and extent remain uncertain. “The committee expects to be able to cut rates further, but we will have to judge meeting by meeting how far and how fast,” he stated.
The Bank’s next interest rate decision is due on 20 March, and financial markets are already pricing in multiple cuts throughout the year. Lenders, in turn, are adjusting their mortgage rates in anticipation, making it more likely that sub-4% deals will become more widely available.
A domino effect in the mortgage market?
Rachel Springall, a finance expert at Moneyfacts, believes that the move by Santander and Barclays could spark further rate reductions from other lenders.
“It was only a matter of time before lenders brought back sub-4% mortgages,” she said. “This is a positive development for the mortgage market, and when a major lender makes such a move, it often prompts its competitors to follow suit.”
For borrowers looking to refinance in 2025, this could be welcome news, especially if more lenders introduce competitive deals in the coming months.
Who can access these sub-4% deals?
While the return of lower mortgage rates is promising, not all borrowers will qualify for these deals. Most of these offers are reserved for those with a 40% deposit or equity, which may exclude many first-time buyers.
Additionally, some of these mortgages come with hefty arrangement fees, meaning borrowers must carefully assess whether the overall deal provides real savings.
Impact on the housing market
Lower mortgage rates could help stimulate the housing market, encouraging more people to buy homes. In its latest survey, the Royal Institution of Chartered Surveyors (RICS) noted that market activity is expected to pick up in the coming months following a relatively slow start to the year.
For prospective buyers, a prolonged period of falling mortgage rates could make homeownership more affordable, particularly if lenders continue to cut rates throughout the year.
Ways to manage your mortgage more affordably
For homeowners looking to reduce their monthly mortgage costs, there are several strategies to consider:
- Make overpayments – If you are still on a lower fixed-rate deal, paying extra now could reduce your long-term interest payments.
- Consider an interest-only mortgage – This can lower monthly payments, though it does not reduce the original loan amount.
- Extend your mortgage term – Many lenders now offer mortgage terms of 30 or even 40 years, which can reduce monthly repayments, though it increases the overall interest paid.
As the mortgage market continues to evolve, borrowers should keep a close eye on changing rates and explore their options carefully to ensure they secure the best possible deal.
