Mortgage Rates Drop Below 4% – What It Means for Borrowers

Lenders Slash Rates Amid Growing Competition

For the first time since November 2024, mortgage rates below 4% have returned to the market, with Santander and Barclays launching eye-catching deals on Thursday. This move comes as competition in the mortgage sector intensifies, driven by expectations of further Bank of England (BoE) rate cuts in the coming months.

However, not all borrowers will be eligible for these deals. First-time buyers, in particular, may face high fees or stricter lending criteria. Nevertheless, this shift signals a positive trend, with more lenders likely to follow suit.

Will More Lenders Cut Mortgage Rates?

• Nationwide, the UK’s largest building society, has already announced plans to reduce some of its rates on Friday.
• Mortgage rates have been steadily falling since the BoE’s recent base rate cut to 4.5%.
• The return of sub-4% mortgages could increase competition, prompting other lenders to introduce similar deals.

The overall market, however, remains significantly higher than these headline rates. Currently, the average two-year fixed-rate mortgage stands at 5.48%, while the typical five-year fixed deal sits at 5.29%, according to Moneyfacts.

Is Now the Right Time to Lock in a Mortgage Deal?

If you have a fixed-rate mortgage set to expire soon, it’s worth reviewing your options. Many borrowers are stuck on higher rates, but the current shift could present an opportunity to secure a better deal.

• Around 800,000 fixed-rate mortgages (with rates below 3%) will expire annually until 2027—meaning many homeowners could still face a payment increase.
   
• Tracker and variable-rate mortgages tend to move with the BoE base rate, so recent reductions could lower repayments for some borrowers.
   
• Mortgage broker Aaron Strutt of Trinity Financial advises borrowers to compare deals and switch if a better rate becomes available.

“If your mortgage is up for renewal soon, now is a great time to review your options and possibly swap to a lower rate,” he says.

What’s Next for Interest Rates?

The Bank of England is widely expected to cut interest rates further in 2025, though the pace and size of reductions remain uncertain.

BoE Governor Andrew Bailey has confirmed that the Monetary Policy Committee (MPC) will assess rates "meeting by meeting", with the next decision set for 20 March.

If inflation continues to ease, more rate cuts could be on the horizon:

1. Lower BoE rates would likely drive mortgage rates down further, making homeownership more affordable.
    
2. Savers may see lower returns, as banks adjust interest rates on savings accounts.
    
3. More competition among lenders could lead to additional mortgage rate reductions, benefiting those looking to refinance.

Conclusion: Should You Act Now or Wait?

With mortgage rates finally falling, borrowers have an opportunity to lock in lower repayments. If more BoE rate cuts come in the next few quarters, mortgage rates could continue to decline, but there’s always uncertainty in the market.

For homeowners nearing a remortgage period, the key takeaway is to stay informed, compare rates, and act quickly when better deals arise. With lenders competing more aggressively, 2025 could bring much-needed relief to millions of UK mortgage holders.

Will rates drop even further? The answer lies in how quickly the Bank of England moves—but for now, the trend is looking positive.

Sources: (BBC.co.uk, FT.com)