Best 5-year fix mortgage drops to 3.75% – will they get cheaper?

Homeowners hit by the spike in mortgage rates have a glimmer of hope again as the top five-year fixed-rate mortgage has fallen to 3.75 percent – ​​but will rates continue to fall?

Last autumn, the mini-Budget caused chaos in the bond market, resulting in a sharp rise in borrowing costs, with direct consequences for fixed mortgage rates.

No one knew exactly how long it would take for interest rates to fall, and most brokers and market experts expect them to settle somewhere between 4 and 5 percent by 2022.

However, in early February, we saw the first five-year fixed mortgages fall below 4 percent, as HSBC and Virgin Money released rates of 3.99 percent and 3.95 percent, respectively. This led to declarations of a “mortgage rate war” from real estate commentators as lenders battle to attract customers.

Now Platform, part of The Co-operative Bank, has announced a five-year fixed rate starting at 3.75 percent from Monday 20 February.

Mortgage market watchers are now wondering whether interest rates will continue to fall and fall back below 3.5 percent based on five-year fixes.

Nicholas Mendes, mortgage technical manager at broker John Charcol, said: ‘Platform has a history of upsetting the bigger banks in the market. Platform had one of the lowest five-year fixed rates on the market in October 2021 at 0.79 percent.

“Not only has the platform’s pricing put the gauntlet on five-year fixed rates, but their two-year fixed rates that hover above 4 percent also provide an interesting proposition for homeowners, who may have felt that longer-term fixed rates are their any were. option for a decent rate.’

Will we see rates fall below 3.5% for the summer?

A good indication of where mortgage rates are heading is to look at the swap rate. Most lenders rely on swap rates to price their mortgage products.

Swap rates are an agreement between banks whereby they exchange one stream of future fixed interest payments for another stream of variable interest payments, based on a fixed price.

They usually show where the markets think mortgage rates will go in the longer term, and are discounted in home loan prices.

Graham Cox, director of Self Employment MortgageHub, said: “With five-year UK swap rates currently at just over 3.8%, 3.5% deals could be available in a few months if the Bank of England intention to lower the base interest rate. .

“Assuming there are no more inflationary shocks, key interest rates could fall in late spring or early summer.”

The Bank of England is currently expected to raise its key rate to 4.25% for the last time in this cycle next month, before cutting it later in the year if inflation continues to fall.

“You will always tend to see lenders competing with each other at the beginning of the year to get business and trying to hit their targets as early as possible. Given the way rates are falling on five-year fixed deals, I wouldn’t be surprised if we see rates as low as 3.5 percent from late March/early April,” said Gaurav Shukla, CEO of mortgage broker Home Me. .

“If we continue to see inflation fall and swap rates improve, we could well be in a position where the five-year fixed rate is around 3 percent by the end of the year.”

Ups and downs: Mortgage rates have risen gradually since the Bank of England started raising base rates. They then peaked after the mini-Budget, but are now slowly declining

However, other experts are less confident that rates will continue to fall.

Natalie Hines, founder of broker Premier One Mortgages, said other lenders could follow Platform, but most will hold interest rates steady.

“While I expect five-year fixed rates to fall to 3.5 percent, it’s a guess how low they go — and for how long,” Mendes said.

“With the recession in the real estate market and completions expected to be lower than in previous years, we could see an interesting opportunity for homeowners as lenders try to capture some of the limited market space in attracting and retaining new property. customers.’