HOUSE THAT
Major lender cuts mortgage rates as they dip below 4% for the first time since February
Watch our video on how you can bag the best mortgage deal
A MAJOR building society has become the first lender to launch a deal below 4% since February.
Nationwide has revealed a drop in the cost of borrowing, easing the pain for homeowners looking to move property.
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It comes after several lenders have been cutting the rates they are offering, amid expectations that the Bank of England base rate will start to be cut soon.
From tomorrow, the lender is reducing rates by up to 0.25% across its two, three and five-year fixed rate mortgage products.
The new rates include a five-year fixed rate of 3.99% for new customers moving home with a 40% deposit, which also has a £1,499 fee.
It is the first time that a major mortgage lender has offered a five-year fixed-rate mortgage below 4% since February.
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Santander was the last the last bank to offer a five-year deal below 4% at 3.95%.
While a 4% deal is a far cry from the days when mortgage rates were below 1%, it's a significant drop from a peak of 6.85% since in August 2023.
Nicholas Mendes, from mortgage advisers John Charcol, said: "This is fantastic news for borrowers and signifies a significant change in the mortgage landscape after recent months of increased rates.
This rate is for purchases only. Those remortgaging will need to wait a bit longer before we see rates below 4% as well."
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Nationwide is also set to switch up the rates on a range of other mortgage products.
A no-fee five-year fixed-rate loan is also available at 4.24% for people with a 40% deposit.
Best schemes for first-time buyers
For first-time buyers, Nationwide is offering a five-year fixed rate of 4.55% for people with a 15% deposit for a fee of £999.
However, as part of the shake-up Nationwide is increasing the rates on selected two-year tracker products by up to 0.15%.
Tracker mortgages, also known as variable rate tracker mortgages, are linked to the BoE base rate.
It means that, unlike fixed-rate mortgages, your monthly payments can go up or down depending on the wider economy.
It is also reducing rates for existing customers moving home by up to 0.23% on selected two-, three- and five-year fixed-rate products and cutting additional borrowing rates by up to 0.25% on on two-, three- and five-year fixed products.
Henry Jordan, Nationwide’s director of home, said: “As the country’s largest mutual, we want to maintain our support for all types of borrowers.”
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.
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 (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
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 a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware 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 you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
What is going on with mortgage rates?
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Mortgage rates remain high as the Bank of England hiked the base rate several times in a bid to tackle inflation.
The base rate is used by banks to set interest rates for borrowing, including mortgages.
It has remained at 5.25% since August last year.
But after it was revealed that inflation remained at 2% in June - the second month in a row- there are expectations that the Bank of England could cut interest rates on August 1.
This has prompted lenders to cut rates, with a flurry of the biggest banks making frequent changes to their mortgage products.
Santander, First Direct and TSB were among those who slashed rates earlier this month.
Competition is hotting up in the mortgage market as lenders compete for customers.
A wave of rate drops last week brought good news for homeowners and first-time buyers who have been pummelled by rising interest rates.
Nick from John Charcol added: "Lenders have been busy competitively repricing against each other over the last fortnight, with purchase rates significantly lower than remortgage rates.
"Purchase rates are highly competitive compared to market pricing. Expect the biggest future reductions to be in remortgage rates, as they still have room to decrease, and any significant reductions are expected in this area."
What will happen to mortgage rates in the future?
Millions of homeowners have faced higher rates after coming off deals they initially fixed when rates were low, and first-time buyers have found it harder to get on the property ladder.
Those on fixed mortgages have seen bills go up by £3,000 a year as their deals end, according to Moneyfacts.
This year an estimated 1.6 million will see their fixed deals end meaning they face higher costs.
Nick said: "We are unlikely to see the days of 1% or 2% mortgage rates again.
"It’s important to plan and budget accordingly, considering more sustainable and realistic interest rates moving forward, to avoid delaying a purchase or ultimately setting yourself up for disappointment."
The average two-year fixed residential mortgage rate today is 5.81%, according to Moneyfacts, down from 5.88% on Monday.
Meanwhile, the average five-year fixed residential mortgage rate today is 5.4%. down from 5.47% on Monday.
Today’s average two-year tracker rate is 5.94%.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “Fixed mortgage rates are on the downward trend, which will be a relief to borrowers looking to refinance.
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“There is still much more room for improvement, but it has taken a few months for the lowest fixed mortgage rates to drop below the 4% mark.
“However, as it stands, five-year fixed mortgages are lower than a two-year equivalent, so any borrowers unsure on which to choose would be wise to seek advice to go through their options."
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