Hope for millions of homeowners as ‘mortgage war’ sees rates fall under 5% for first time in months
A NEW mortgage deal with a rate under 5% has hit the market for the first time in months.
It's prompted experts to say that a mortgage rate war "is well and truly underway".
It gives hope to millions of homeowners who have been hammered by rising interest rates this year.
The Mortgage Works, which is part of Nationwide Building Society, has launched a five-year fixed-rate deal with a rate of 4.99%.
It's available to people borrowing up to 55% the value of the property and as it's a buy-to-let deal, is only for landlords.
But the move means rates for residential mortgages could soon fall too, experts say.
Read more in money
Gary Bush, financial adviser at MortgageShop.com, said: "This is more great news from the UK's largest mortgage lender and a division of the UK's largest building society”.
“The mortgage rate war is well and truly underway and it's looking likely that there will be a busy end to 2023.”
The Bank of England base rate is at its highest for 15 years, which is usually passed on to borrowers in the form of higher borrowing costs, including mortgages.
The Bank of England (BoE) lifted the base rate again to 5.25% in August.
Most read in Money
It is expected to hike rates again next week, when policymakers meet on September 21.
The average five-year mortgage rate sits at 5.73%, according to Rightmove.
The average two-year fixed-rate mortgage rate if you have a 15% deposit has dropped to 6.29%, down from 6.32%.
Diarmuid Phoenix from Mint Mortgages and Protection said: "Seeing the return of rates under 5% in line with falling SWAP rates should hopefully give a boost of confidence to borrowers who have been living in fear of the end of their current fixed rate deals, as well as those who have been sitting on the fence, waiting for rates to come down before purchasing.”
Swap rates are used by lenders to make price decisions and underpin fixed mortgage rates.
Dan Knott, a mortgage and insurance adviser at Active Financial said: "It's fantastic to see mortgage lenders reducing rates and a product at 4.99% is certainly a step in a positive direction.
"Commonly, when one lender makes a significant reduction, there will be others who follow in a naturally competitive market.
Many borrowers are facing increasing rates and risk being priced out of their mortgage.
If you have a tracker mortgage that follows the base rate, your interest payments rise with the base rate.
Those on a standard variable rate (SVR) may see their rates rise too, but your lender should always warn you ahead of time.
SVRs are generally higher than fixed rates.
Analysis by comparison site Compare the Market found that UK homeowners on an SVR could save £3,084 a year by switching to a fixed-rate deal.
Anyone already on a fixed rate won't see their rates go up when the Bank of England hikes rates, as repayments are fixed for a certain period.
But, when that comes to an end they could find rates are far higher than when they last fixed.
Millions of people have - or will - come off a fixed deal this year, which they agreed when rates were at a historic low.
How to get the best deal on your mortgage
If you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
But there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after 14 Bank rate rises since December 2021.
And if you're nearing the end of a fixed deal in the next six months it's worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You'll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
READ MORE SUN STORIES
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
It's possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, providing you don't want to borrow more or extend your term.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
You can also join our new Sun Money to share stories and tips and engage with the consumer team and other group members.