Mortgage rates war: HSBC releases a five-year fixed rate below 4%

Five-year fixed-term mortgages have fallen below the 4 percent interest rate mark for the first time since rates shot up last fall following the launch of a new product by HSBC.

The bank’s latest five-year fixed-rate mortgage has an interest rate of 3.99 percent, and it’s also launched a two-year fixed-rate deal at a competitive rate of 4.44 percent.

Previously, the only rate in the market below 4 percent was Virgin Money’s 10-year fixed deal, which launched earlier this month.

Since the start of the year, mortgage brokers have been anticipating a mortgage price war as lenders cut prices to bring in new customers.

They want to make up for a lull in activity at the end of 2022, when economic chaos in the wake of September’s mini-budget pushed average mortgage rates to 6.5 percent and many borrowers waited to make decisions.

Mortgage rates are now falling despite the Bank of England continuing to raise its base rate.

It rose to 4 percent earlier this month, its highest level in 14 years, and is expected to peak at 4.25 or 4.5 percent later in the year.

Borrowers can check the rates they can get based on the value of the home and the size of the loan our best mortgage interest calculator.

Why are mortgage rates falling?

Most lenders rely on swap rates to price their mortgage products.

Swap rates are an agreement in which two banks agree to exchange a 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 are headed in the longer term.

Five-year interest rate swap rates for mortgages are currently around 3.5 percent, suggesting that banks believe interest rates will be at this level five years from now.

Nicholas Mendes, mortgage technical manager at John Charcol, said: “With swap rates hovering at 3.5% on a five-year fix, there is clear evidence that base rates and the economic outlook are looking much more positive than they have been in recent times.

“The markets clearly feel that base rates will go down from the end of this year. This means that competition on mortgage rates will be in full swing. HSBC is the first to “break the camel’s back” and I’m sure we’ll see other lenders follow in the coming weeks.

How low will mortgage rates go?

“We could see five-year fixed rates as low as 3.5 percent in the not-too-distant future, but how far they go is another question,” continues Mendes.

HSBC is the latest major lender to cut its rates. Since the beginning of the year Halifax, Santander and Barclays have all lowered the prices of their fixed rate loans.

Due to the rapid rise in interest rates following the autumn mini budget, the average for both two- and five-year fixed rates rose to more than 6.5 percent in October.

These averages have now dropped to 5.42 percent and 5.14 percent, respectively, according to Moneyfacts — although cheaper deals are available, especially for those with larger deposits.

Less than two years ago, however, mortgages were widely available with rates below 2 percent — and some with rates as low as 1 percent.

It means those who get off existing flat rates and need to take out a new mortgage may still end up paying more each month than they are used to.

According to research by The Mortgage Lender at the end of 2022, more than half of mortgage borrowers had a deal that expired within two years.

David Hollingworth, associate director at mortgage broker L&C said: ‘While those coming to the end of a fixed rate taken during the low interest rates of recent years are still facing higher payments than they were used to, it is far from the prospect of rates of 6 percent or more.

“These deals are starting to offer rates that many feared were going extinct.

“The borrowers who understandably decided to sit on their hands when interest rates went through the roof last October should now seriously consider whether it is time to take advantage of these significant improvements.”