Mortgage rates cut below 4% as competition picks up

As market competition intensifies, two major UK lenders launched mortgage products with interest rates below 4% on Thursday. Expectations of potential further interest rate cuts by the Bank of England have boosted mortgage providers' confidence in lowering their own rates.

However, these eye-catching sub-4% interest rate offers from Santander and Barclays are not available to all borrowers and may come with hefty fees. Mortgage products with rates below 4% have been rare since last November.

The return of such offers may prompt other lenders to follow suit, after a period of relatively subdued market competition. According to the latest data from Moneyfacts, the average interest rate on a two-year fixed-rate mortgage is currently 5.48%, while the average rate on a five-year fixed-rate mortgage is 5.29%.

Aaron Strutt of brokerage firm Trinity Financial said: "Borrowers have been eager to get better mortgage rates, and we are now starting to see these rates emerge. If your mortgage is about to expire and you have already chosen a new product, now is a good time to reassess and potentially switch to a more favorable rate."

Some track rates and floating-rate mortgages are closely linked to the Bank of England's benchmark interest rate, which was lowered to 4.5% a week ago. However, more than 80% of mortgage customers hold fixed-rate products. The interest rates on these mortgages do not change until the agreement expires, usually after two or five years, after which a new product must be chosen to replace it.

It is estimated that approximately 800,000 fixed-rate mortgages (with current rates of 3% or lower) will expire annually on average until the end of 2027. This means that many homeowners will face higher monthly payments when they next renew, but there are signs that the rates they may pay are falling.

Bank of England Governor Andrew Bailey said that the Monetary Policy Committee expects to be able to cut interest rates further, "but we will have to judge the magnitude and speed of the cuts meeting by meeting." This will affect the returns for savers, but may bring better news for borrowers. The Bank of England's next interest rate decision meeting will be held on March 20.

The market and lenders expect further interest rate cuts this year, as can be seen from so-called swap rates. As a result, interest rates on new fixed-rate mortgages are expected to fall, especially as mortgage providers tend to act collectively. Rachel Springall of financial information service Moneyfacts said: "It was only a matter of time before lenders launched mortgages below 4%."

"This is a shot in the arm for the mortgage market, and when a large lender takes such action, it is likely to prompt peers to follow suit and cut rates. Millions of mortgage borrowers hoping to refinance this year need some good news."

Borrowers eligible for sub-4% rates need to pay a 40% down payment, which will make these offers inaccessible to many borrowers, especially some first-time buyers. These products may also charge relatively high fees, so borrowers need to check whether the overall value is right for them.

If mortgage rates fall for a sustained period, it could stimulate demand for homes from buyers. The Royal Institution of Chartered Surveyors (RICS) said in its latest survey that it expects real estate market activity to pick up in the coming months after a subdued start to the year.

Here are some ways to make your mortgage more affordable: Make advance payments. If you are still in a lower fixed-rate agreement period, you may be able to pay more now to save money in the future. Switch to an interest-only mortgage. It can keep your monthly payments affordable, although you won't be paying off the debt you accumulated when you bought the house. Extend the mortgage term. The typical mortgage term is 25 years, but you can now also choose a term of 30 or even 40 years.