Mortgages are finally falling – find out whether you should fix it now or wait for a better deal with our expert guide

First-time buyers are spending an average of £400 more per month on mortgage repayments than at the time of the last general election, according to recent figures from Rightmove

Homeowners and buyers can finally see light at the end of the tunnel of mortgage woes as two of Britain’s biggest lenders cut their mortgage rates this week.

Borrowers can soon breathe a sigh of relief as interest rates fall after years of painfully high borrowing costs, which have seen their repayments rise by hundreds of pounds every month.

Three of Britain’s biggest lenders have announced rapid interest rate cuts.

HSBC is making a host of cuts to its residential and buy-to-let mortgage deals, details of which will be revealed this morning.

Barclays took action yesterday and cut interest rates on its home mortgages by up to 0.25 percentage points for buyers with a 40 percent deposit.

This follows NatWest cutting rates for refinancing homebuyers on Friday.

Brokers say they expect more lenders to follow suit amid brewing competition.

Households could see a wave of spending cuts in the coming weeks as the market reacts to an upcoming cut in key interest rates by the Bank of England, expected later this summer.

So if you’re planning to buy a house or need to take out a new mortgage, should you fix your rate now – or wait for further cuts later this year?

Better rates are on the horizon

Mortgage rates have remained stubbornly high this year, further increasing the pain for borrowers.

First-time buyers are typically spending £400 a month more on mortgage repayments than at the time of the last general election, recent figures from Rightmove show.

Repayments have risen by 61 per cent to an average of £1,075 per month, up from £667 in 2019. Meanwhile, wages have only risen by 27 per cent.

And this month’s base rate decision was another blow to homeowners desperate for immediate relief.

The Bank of England’s Monetary Policy Committee has voted to keep the base rate at 5.25 percent, continuing the mortgage pain for homeowners and buyers.

Payments: If interest rates fell to 4.5% by the end of the year, borrowers on a £150,000 25-year mortgage with a typical two-year fixed rate would pay £43 less per month

But positive inflation figures released last week have fueled new hopes that a key rate cut could come as early as August. It would be the first cut since March 2020.

Consumer price rises fell to 2 percent in the year to May, another reassuring sign that mortgage cuts are coming soon.

The last time inflation was 2 percent in July 2021, the average two-year mortgage rate was 2.55 percent and a five-year mortgage rate was 2.78 percent, according to interest rate controller Moneyfactscompare. Yesterday, the average two-year fix was 5.96 percent and the average five-year fix was 5.53 percent.

David Hollingworth, of broker L&C Mortgages, says the cuts at HSBC and Barclays are good news for borrowers – even if they don’t yet signal the start of a full-scale price war.

If interest rates fell to 4.5 per cent by the end of the year, borrowers on a £150,000 25-year mortgage with a typical two-year fixed rate would pay £43 less per month, or £518 less per year, the report said. figures from L&C Hypotheken.

Those with a £300,000 home loan would see like-for-like payments fall by £86 per month, or £1,035 per year.

Is it best to fix it now or hold fire?

Hundreds of thousands of homeowners will be forced to take out a new mortgage in the next six months, official figures show.

Those who have to commit to a new interest rate today face a difficult decision as interest rates have yet to be reduced. Households may be tempted to return to an adjustable-rate mortgage at a standard rate when their mortgage matures, hoping that interest rates will fall substantially in the coming months.

But Jamie Lennox of Dimora Mortgages says lenders are already factoring in a possible summer base rate cut on their mortgage rates.

He says: ‘Don’t make the mistake of thinking that interest rates will fall dramatically once the base rate is lowered. What we are seeing now is an early reaction to the base rate cut, as lenders reprice their deals in anticipation.”

No rush: Households may be tempted to return to a standard-rate variable mortgage when their mortgage matures, hoping that rates will fall significantly in the coming months

Standard variable rates are typically much higher than those for fixed rate products. The average rate as of June 1 was 8.18 percent, Moneyfactscompare says.

Such high interest rates mean that homeowners who wait to sign a contract for two or five years could be worse off, even if rates fall toward the end of the year.

Calculations for Money Mail from L&C Mortgages show that borrowers who lock in a two-year fixed interest rate at 5 percent today are still better off than if they switched to a variable rate and waited to lock in until rates fall.

A homeowner with a £150,000 mortgage with a 25-year term and a standard variable rate of 8.74 per cent for six months, who then opts for a fixed rate of 4.5 per cent in six months, would save £ 22,480 on his mortgage.

The same borrower who takes out a 5 per cent loan for two years now would pay £21,045 in two years – £1,435 less than if he had waited.

How long do you have to lock in?

There is no one-size-fits-all approach to how long borrowers should commit to a fixed-rate contract.

For example, it will depend on the household’s disposable income, likelihood of moving and aversion to risk, Mr Lennox says.

The broker adds that he expects mortgage interest rates to be lower in two years. The latest forecasts from Capital Economics show that the base interest rate will fall to 3 percent by the end of 2025.

This means that you may be better off opting for a two-year term so that you can take out a new mortgage when interest rates are lower.

If this is true, anyone who takes out a five-year rate could miss out on lower interest payments if rates go back up in five years.

Nicholas Mendes, of estate agent John Charcol, says: ‘For those looking to remortgage soon, or who want to avoid being stuck with a higher interest rate for longer than necessary, securing a two-year fixed rate will offer more flexibility. But if you value long-term stability, a five-year fixed interest rate period is the ideal option.’

Justin Moy, from EHF Mortgages, added: ‘It is easy for external influences to change mortgage rates quickly, so early involvement is crucial to ensure borrowers can benefit from the cheapest options for refinancing or extending mortgages. the mortgage.’

Levans@dailymail.co.uk