Another major lender cuts mortgage rates today but should you lock in now or wait for more falls?
ANOTHER major lender has slashed its mortgage rates but experts explain whether you should lock in now or hold off.
Nationwide has announced significant rate reductions across a range of mortgage products, effective from today.
These cuts are targeted at both new and existing customers, including those seeking to remortgage or switch products as their current agreements come to an end.
Remortgage rates have seen the largest cuts, with decreases of up to 0.35% available on two, three and five-year fixed-rate deals up to 95% Loan-to-Value (LTV).
For example, a two-year fixed rate at 90% LTV with no fee is now down to 5.49%.
Those switching products within Nationwide can also benefit from rate reductions of up to 0.13% on selected two three, and five-year fixed products.
Further reductions apply to customers moving home, with rates on selected two-year fixed products falling by up to 0.10%.
For instance, a two-year fixed rate at 60% LTV is now available at 4.22% with a £1,499 fee or 4.27% with a £999 fee.
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.
The base rate is directly linked to tracker mortgages, while standard variable rates are often changed to reflect the BoE’s move.
If you’re on a fixed deal then your rate won’t change immediately but when you come to choose a new deal, you could find rates are lower.
That’s because swap rates, which are used by lenders to set rates on mortgages, are now below 4%.
Other lenders that have reduced selected fixed rates today include Virgin Money, with reductions of up to 0.07%, TSB, with cuts of up to 0.15%, and NatWest, offering decreases of up to 0.36%.
Leeds Building Society has also lowered rates by up to 0.12% for first-time buyers and up to 0.19% for homebuyers, while Yorkshire Building Society has made more substantial cuts, slashing certain rates by as much as 0.97%.
The latest rate reductions follow swiftly on the heels of Santander and Barclays introducing the first sub-4% mortgages seen on the market since November.
Despite these rate reductions, the average two-year fixed deal stands at 5.44%, according to moneyfactscompare.co.uk.
However, the question remains whether borrowers should lock in a rate now or wait for further potential drops.
Should I lock in a new fixed deal now?
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Mortgage rates are finally moving in the right direction and are expected to continue to edge downwards as further base rate cuts filter through.
“However, while there are some cheaper, sub-4% rates available, borrowers may be wondering whether they should hang on for longer before locking in, in the hope that rates will fall further.”
Mark says that borrowers should carefully evaluate their individual circumstances and warned against the potential financial impact of slipping onto a lender’s standard variable rate (SVR).
In general, unless you line up a new fixed deal at the end of your current deal’s term you’ll fall on your lender’s standard variable rate.
Typically, if you do not secure a new fixed deal when your current mortgage term ends, you will automatically move onto your lender’s SVR.
This rate is generally higher than those offered on fixed deals, fluctuates in line with changes to the base rate, and is usually less competitive than introductory rates.
That’s why David Hollingworth, associate director at broker L&C, said: “If your current deal is coming to a close it makes sense to lock a deal in around three to four months ahead.
“That will secure you the best available rate now and protect against any increases if rates take a turn again.
“It also gives you the flexibility to keep rates under review and jump onto a better deal if rates continue to fall.”
What if you don’t want to recommit to a fix?
If you’re hesitant about committing to a new fixed deal or have already transitioned onto your lender’s SVR, there may still be a way to reduce your costs in the short term.
One expert suggests that households in this position could explore switching to a tracker mortgage as a potential cost-saving option.
A tracker mortgage is a type of variable-rate mortgage where your monthly payments fluctuate in line with changes to the Bank of England base rate.
With this arrangement, you typically pay the base rate plus an additional percentage in interest.
While this means your monthly payments can rise and fall, Nicholas Mendes, mortgage technical advisor at John Charcol, said that typical tracker rates are still several percentage points lower than SVRs.
He added: “Tracker mortgages remain a viable option for borrowers who prioritise flexibility, particularly as they offer the potential for lower monthly payments if interest rates fall.
“While trackers currently come at a higher cost, they offer advantages that fixed rates do not.
“If the base rate falls sooner or faster than expected, tracker borrowers would benefit from lower monthly payments without needing to remortgage.”
While many lenders don’t charge exit fees on tracker mortgages, some do, so it’s crucial to check the terms and conditions of specific product before you commit.
The average tracker rate currently stands at 5.21%, a slight decrease from 5.39% recorded this time last week, according to Moneyfactscompare.co.uk.
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 mortgage comparison tool 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.
“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.”
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.