Mortgages of under 4% are back but dangers lurk for borrowers

Mortgage lenders in the UK are currently offering fixed-rate deals with interest rates below 4%, sparking a mini price war among providers. However, brokers caution that further rate cuts are not guaranteed.

With expectations of more interest rate cuts by the Bank of England in response to global economic challenges, lenders are already factoring in these potential cuts into their current deals. This poses a risk for borrowers who are banking on continuous drops in mortgage costs.

Aaron Strutt, a broker at Trinity Financial, emphasizes that while there is a possibility for fixed rates to become cheaper if the base rate decreases, there are no guarantees in the current market.

Tracker and variable rate mortgages closely align with the Bank of England’s base rate, which is anticipated to be reduced from 4.5% on 8 May. However, the majority of mortgage customers hold fixed-rate deals, where the interest rate remains constant until the deal ends.

As approximately 800,000 fixed-rate mortgages with rates below 3% are set to expire annually until 2027, the average rates for two-year and five-year fixed deals currently stand at 5.21% and 5.12% respectively.

Despite the uncertainty, lenders are once again offering sub-4% deals to customers, driven by market expectations of further rate cuts. This has led to a drop in swap rates, influencing mortgage rates over different terms.

Rachael Hunnisett, a mortgage broker at April Mortgages, advocates for longer-term fixed mortgages to provide payment security and stability for borrowers. While rates may be slightly higher, the certainty they offer is a significant advantage.

Hunnisett’s firm provides extended fixed-term mortgages to cater to borrowers seeking long-term financial stability. She notes that while rates may be higher, the predictability of payments is a significant advantage for many individuals.

There is a trend among lenders to offer more flexible borrowing options, allowing customers to access larger loan amounts, particularly first-time buyers. The increased competition in the market is also leading to improved rates for remortgaging customers.

David Hollingworth, a broker at L&C, highlights that sub-4% deals are now a standard offering from major lenders. However, he cautions that the volatile global economic landscape could impact these rates in the near future.

To mitigate risks, borrowers are advised to secure deals in advance of their current mortgage expiration, enabling them to switch to better rates if the market conditions improve.