How much more will mortgage rates fall? TSB and Nationwide latest to cut prices

Lenders have continued to cut mortgage rates at a rapid pace this week, with several more big names taking deals below 5 percent.

TSB will launch a five-year fixed mortgage tomorrow with an interest rate of 4.89 percent. It is available to people buying a house with a 40 per cent deposit and a £995 fee.

This isn’t as cheap as Virgin Money’s comparable five-year purchase deal at 4.82 per cent interest, but it comes with a higher fee of £1,295 and is only available through mortgage brokers.

For a mid-priced house (£258,000) with costs included in the mortgage amount, monthly payments would be £902 on the TSB mortgage and £897 for Virgin – based on a 25-year term.

NatWest is also offering a 4.89 per cent deal, but with a £1,495 fee, which would cost £905.

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Nationwide has also announced a series of rate cuts, also starting tomorrow. The lowest interest rate fixed deal is now 4.94 per cent with a five-year fix for new borrowers who purchase with a 40 per cent deposit, which comes with a £999 fee.

It follows a wave of mortgage rate cuts last week by companies including Halifax, Barclays, Santander and Clydesdale Bank.

According to the financial information service Moneyfacts, the average five-year fixed interest rate fell below 6 percent on Thursday. On October 2, this had fallen even further to 5.97 percent.

The typical two-year fixed rate, including all deposit sizes, is now 6.47 percent.

The biggest reductions to date have been among people with large deposits or a lot of equity in their property, and have largely been focused on those buying a new home.

However, one expert said today’s announcements also include some good deals for those needing to remortgage.

Over the peak: fixed mortgage rates are falling, but are still much higher than in the recent past

David Hollingworth of mortgage broker L&C said: ‘There are a growing number of lenders competing hard for the top spot, but we are increasingly seeing five-year moving rates fall below 5 per cent, something that only seemed a long way off. a few months ago.

‘It has been noticed that many of the lowest rates are being offered to those buying a new home, rather than to borrowers looking for a better rate to switch to.’

This includes a nationwide deal of 4.99 per cent with a £999 fee, for those who refinance with a 40 per cent deposit or equity.

“That is much more in line with the 4.94 per cent purchase option and will be welcome news for those considering the options as their current fixed rate deal comes to an end,” Hollingworth added.

It has also made some cuts to its tracker products.

Some borrowers may prefer to take a tracker at this time as there are often no early repayment fees involved, meaning they would be free to switch to a fixed rate if they could get cheaper become.

Nationwide’s free two-year tracker for those with a 40 percent deposit has been reduced by 0.3 percent to 5.99 percent, making it one of the cheapest trackers on the market without fees.

Trackers track the base interest rate plus a certain percentage set by the bank, in this case 0.74 percent.

The base rate did not increase in September, and if this trend continues, these deals could become more attractive.

Rates for those with smaller deposits have also started to fall. Nationwide also has a free tracker for those with a 15 percent deposit, which has been reduced by 0.39 percent and now costs 6.22 percent.

Nicholas Mendes, mortgage technical manager at estate agent John Charcol, said: “This really is Nationwide’s gauntlet.

‘It already offers market-leading interest rates on deposits at 40 and 25 per cent, but this latest cut will see rates on lower deposits fall further, strengthening its grip on the market.

For example, TSB’s new offer includes a rate of 5.14 per cent for those buying a home with a 15 per cent deposit, which has a £995 fee and would be one of the best deals for that loan size.

Will mortgage rates fall further?

As the big moves in mortgage rates over the past two years have shown, it’s not always easy to predict where rates are headed.

However, borrowers can find a clue as to where financial markets currently think interest rates are headed by looking at swap rates.

These are agreements where two counterparties, for example banks, agree to exchange a stream of future fixed interest payments for a stream of future variable payments, on a fixed amount basis.

Mortgage lenders enter into these agreements to protect themselves against the interest rate risk associated with providing fixed-rate mortgages.

The five-year swap rate is currently 4.53 percent. Simply put, this means that financial markets expect five-year mortgages to be priced at that level by 2028. The two-year swap rate is 5.06 percent.

Experts say this means interest rates are unlikely to fall below the next milestone, 4.5 percent, in the near term.

David Hollingworth said: ‘How long rates can continue on this downward trajectory is difficult to say and swap rates appear to have stabilized at levels that would make it difficult to see any further acceleration to reach 4.5 per cent in the near term reach.

“That may take more time, and more positive news on inflation will provide more slack and allow lenders to make further cuts.”

However, he said further cuts could follow even if rates did not reach that level.

Downhill from here? Two mortgage experts have said that interest rates may not fall much further in the near term, and that interest rates may not even reach 4.5% for some time.

“I still expect more lenders to compete harder to keep up with leading interest rates, and that should leave room for more gradual improvements.

“It may not be worth sustaining substantial cuts at this point, especially if that means sticking with a standard variable rate that could be several percentage points higher than the deals currently on offer.

Nicholas Mendes, mortgage technical manager at broker John Charcol, said that while he wouldn’t rule out a drop to 4.5 percent at the moment, it wasn’t certain and the situation could change depending on what happens with inflation and the base rate. .

He said: ‘In recent days, government bonds have risen and swaps have risen on the back of higher fuel prices, and markets are once again forecasting further rises in key interest rates following the recent rate cut in September.

“Despite this, I think three- and five-year fixed rates will continue to fall and I expect five-year rates to continue to fall.

“While no one can really be sure, based on the current price trajectory, I wouldn’t rule out a five-year fix of 4.5 percent by the end of the year.”