Santander is set to introduce a two-year fixed-rate mortgage at 3.99% starting Tuesday, marking it as the only deal on the market with a rate below 4%. This comes as lenders compete to offer more attractive mortgage rates.
In recent weeks, many mortgage lenders have started providing five-year fixed rates below 4% due to a series of rate reductions. However, Santander’s new mortgage, which comes with a £999 fee, is specifically for buyers who can make a deposit of at least 40%. This offer stands out in the current competitive mortgage market, targeting those with substantial deposits looking for short-term stability in their mortgage rates.
Lower home loan rates are currently available, with the lowest rate at 3.77%. However, these rates require borrowers to commit to a five-year fixed term. This could result in higher costs if mortgage rates fall further in the coming months and years.
Mortgage brokers are now predicting that other lenders will soon offer similar rate reductions. They also anticipate that current rate cuts will persist even if the Bank of England decides not to lower interest rates during its upcoming meeting on Thursday.
While the Bank of England is expected to keep rates steady at 5%, any unexpected rate cuts could lead to even lower mortgage rates. This potential for further reductions is something borrowers should consider when deciding on their mortgage options.
Ray Boulger, senior mortgage technical manager at John Charcol, indicated that if the Bank of England’s Monetary Policy Committee (MPC) opts for a rate cut in their upcoming meeting, it is likely to be followed by further reductions in mortgage rates. He explained, “If the MPC cuts rates this time, it will probably lead to additional decreases in mortgage rates soon after. The medium-term trend for mortgage rates is clearly downward, though the speed of this change is less certain.”
Boulger also noted, “If the MPC decides to hold rates steady this week, we might experience a brief pause in the trend of rate cuts. However, this pause should be seen as temporary rather than a shift in the overall direction of rates.”
The new mortgage deal from Santander, offering a two-year fixed rate at 3.99%, is considered the lowest rate since Liz Truss’s mini-budget announcement in September 2022, reflecting significant competition among lenders and a potential shift in market dynamics.
Currently, the lowest two-year mortgage rate available across the UK is 4.09%, offered by TSB. For a loan amount of £250,000 over a standard 25-year term, this rate results in a monthly payment of £1,332. However, Santander is set to introduce a new mortgage deal with a lower rate of 3.99%. With this deal, the monthly payment for the same loan amount would be reduced to £1,318, providing borrowers with an annual saving of over £160.
This new offer from Santander stands out in the market, potentially setting a benchmark for future mortgage deals. Aaron Strutt from Trinity Financial has suggested that other lenders might soon follow Santander’s lead by offering more competitive two-year mortgage rates. Such changes could further benefit borrowers looking for more affordable mortgage options.
“If Santander can offer a two-year fixed mortgage rate below 4%, other lenders are likely to follow soon,” he told i.
Elliott Culley, director at Switch Mortgage Finance, shared a similar view. He noted, “I expect other lenders will follow suit. Last week saw more aggressive rate cuts, contrasting with the cautious approach of the previous two months.”
Mortgage rates have been decreasing gradually over recent months, but the most competitive rates have been limited to those with larger deposits and primarily for new home purchases. Remortgaging customers have generally seen fewer benefits.
Fixed mortgage rates are influenced by several factors, including Swap rates, which typically reflect expectations about the future movements of the Bank of England base rate. Rates might also decrease if lenders need to boost their business, as suggested by Mr. Culley, who mentioned that Santander’s recent rate cut might be aimed at meeting internal targets.
With most economists not anticipating a rate cut by the Bank of England on Thursday, it is unlikely that this would lead to an increase in rates. Forecasts from Pantheon Macroeconomics and Deutsche Bank Research suggest that a rate cut in November is more probable than one this week.
Despite recent reductions, mortgage rates remain significantly higher than in previous years.
In 2020 and 2021, some customers could secure mortgage rates below 1 per cent. However, the Bank of England raised interest rates from 0.1 per cent to a 16-year high of 5.25 per cent by the summer of 2023.
There was a temporary reduction in rates in January this year, driven by expectations that the Bank would cut rates more rapidly. Despite this, no two-year fixed-rate mortgages fell below 4 per cent during that period.
The Government has criticised previous Conservative administrations, particularly Liz Truss’s brief tenure, for the high mortgage rates affecting households. After Truss’s mini-budget in September 2022, mortgage rates increased sharply as Swap rates went up.
While mortgage rates did rise following this fiscal event, current rates are primarily influenced by the overall high interest rates set to tackle inflation, rather than the mini-budget itself.
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