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Major bank launches first mortgage under 4% in 2025 as lenders ignite new rate battle
Plus, we explain how to get the best deal
A MAJOR bank is set to introduce the first sub-4% mortgage deal of the year.
Santander said that from Thursday, borrowers will be able to apply for one of four new products as it launches a range of two and five-year fixed-rate deals at 3.99%.
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The new deals include a 60% loan-to-value (LTV) two or five-year fixed-rate mortgage at 3.99%, with a fee of £1,999 for homebuyers and £1,749 for those remortgaging.
To qualify for these offers, borrowers will need to provide a deposit equivalent to 40% of the property's value.
This is because the loan-to-value (LTV) ratio reflects the percentage of the property's value being borrowed in relation to the deposit provided.
For example, if you're buying a property valued at £250,000 with a £100,000 deposit, you would borrow £150,000, resulting in an LTV of 60%.
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Other new deals include a buy-to-let home purchase mortgage at 65% LTV with a two-year fixed rate at 4.35% with a £1,749 fee or 4.89% with no fee.
The lender is also making reductions of up to 0.40% on more than 80 other mortgages products from Thursday.
David Morris, head of homes at Santander, said: "We're delighted to launch a range of new products, along with rate cuts on our existing range, that will make a difference to customers across every stage of the home-buying journey."
The move follows a cut in the Bank of England base rate last week, from 4.75% to 4.5%, fuelling hopes that competition between lenders to chop mortgage rates could heat up.
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David Hollingworth, associate director at L&C Mortgages said: "These are the first standard rates from a high street lender to drop below 4% since last November and deals are available to both buyers and those remortgaging.
"The improvement in the rate of inflation last month and recent rate cut seems to have reversed market anxiety about whether rates may have to stay higher for longer.
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"That has been feeding through to mortgage rates in the last week, and underlines gradual improvement in the market, as fixed rates begin to ease back."
However, David warns that the new mortgage products still come with higher than normal fees.
He said: "They do come with a bigger fee, of £1,999 or £1,749 for purchase and remortgage respectively.
"Borrowers will therefore need to keep their wits about them and do their sums, to make sure that they are getting the best overall value."
Within hours of Santander's announcement, Barclays revealed that it would be launching new rates across a range of its fixed mortgage products starting tomorrow.
In a bid to compete with Santander, Barclays is offering a 60% LTV five-year fixed-rate mortgage at 3.99%, with a fee of £899.
However, this deal is exclusively available to Premier bank account holders, who must have an annual income of at least £75,000 or a minimum of £100,000 in savings held with the bank.
Despite this, the lender will also reduce rates on six homebuyer and remortgage products by as much as 0.36%.
For buyers who can't afford a 40% deposit, alternative options are available.
The number of mortgage deals catering to borrowers with up to 95% loan-to-value (LTV) — requiring just a 5% deposit — has risen.
While these deals account for only 6% of the total mortgage market, their availability has grown to 388 as of early February 2025, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, commented: "Borrowers with a limited deposit may find it encouraging to see a growth in choice for mortgages available at 95% loan-to-value, now at its highest count in almost five years."
The average mortgage rates for these products currently stand at 5.99% for a two-year fixed deal and 5.53% for a five-year fixed deal.
Santander's decision to cut rates follow a flurry of mortgage rate cuts over the last couple of days.
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NatWest announced it would be lowering mortgage rates by as much as 0.36 percentage points yesterday.
Last week, six leading lenders revealed reductions in their mortgage rates ahead of the Bank of England decision on Thursday.
The changes began with Barclays and Coventry Building Society cutting their rates on Monday.
This was followed by Halifax, HSBC, and Clydesdale Bank making similar adjustments on Wednesday.
Yorkshire Building Society then joined in with its own rate reduction on Thursday.
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's next for mortgage rates?
Financial markets are still exercising more caution regarding the pace of future interest rate cuts than previously anticipated.
While economists predict three further cuts by the end of 2025, reaching a 4% base rate, this projection coincides with a revised inflation forecast.
The Bank of England now expects inflation to peak at 3.7% later this summer, higher than earlier estimates.
This upward revision is partly attributed to the impact of policies introduced in the October 2024 Budget.
Specifically, measures within the budget have contributed to a rise in cost inflation, pushing the overall inflation figure higher.
This presents a complex situation for the Bank of England, as rising inflation typically warrants higher interest rates to curb spending and stabilise prices.
However, although mortgage rates are influenced by the Bank of England’s base rate, they aren't directly tied to it.
Instead, they depend on swap rates, which follow government bond yields.
When the bond markets are unstable, yields rise, making it more expensive for banks to borrow money.
This, in turn, pushes up mortgage rates.
As of today, the average two-year fixed mortgage rate stands at 5.44%, while the average rate for a five-year fixed deal is slightly lower at 5.20%, according to Moneyfactscompare.co.uk.
Meanwhile, the average two-year tracker mortgage rate across all LTVs is 5.46%.
Despite recent market turbulence, experts remain confident that further interest rate cuts are inevitable, which will lead to reductions in mortgage rates as well.
Peter Stimson, head of product at the mortgage lender MPowered, said: "The markets regarded the recent 0.25% rate cut as a nailed-on certainty.
"But what has raised some eyebrows was the strength of feeling among the Bank of England's ratesetters at the latest meeting.
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"The only two dissenting voices on the Bank's nine-member committee wanted to cut more, not less, off the Base Rate.
“All of which will lend credence to the idea that a flurry of further base rate cuts could be on its way."
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