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Mortgage rates are falling – five-year fixes to drop under 4%. But will they get cheaper?

Interest rates on mainstream five-year fixed mortgage deals are set to drop below 4% this week – the first time in more than six months they've been this low from a high-street lender. Meanwhile, two-year fixes are set to fall below 4.5%. But will they get any cheaper and what, if anything, should you do about it? 

Lenders have been steadily cutting interest rates on fixed mortgage deals for a number of months now, a trend that's only been encouraged by the Bank of England holding the base rate – which influences the mortgage rates homeowners pay – at 5.25% on three consecutive occasions. 

With market analysts predicting the base rate will fall in 2024, we're beginning to see the most competitive mortgage rates emerge since the summer of 2023. High-street lender HSBC is set to cut its cheapest five-year fixed mortgage to 3.94% tomorrow (Thursday 4 January 2024), and it's expected other lenders may follow suit. 

Fixed mortgage rates continue to edge down

Rapidly increasing rates on fixed mortgages was the story of last summer, with the cheapest rates on two-year and five-year deals peaking at 5.96% and 5.28%. But since then rates have slowly come down, now sitting at 4.6% for two-year fixes and 4.28% for five-year fixes (for first-time buyers and home-movers).

The improvement in rates means the top two-year fixes for home-buyers now cost around £80 a month or £960 a year less per £100,000 owed compared to the summer of 2023, while the top five-year fixes for home-buyers are £60 a month or £720 a year less compared to the same period. 

The direction of fixed-rate mortgages (1)

Loan-to-value (2) Cheap two-year fix Cheap five-year fix Cheap 10-year fix
Nov '23 Dec '23 Jan '24 Nov '23 Dec '23 Jan '24 Nov '23 Dec '23 Jan '24
60% 4.97% 4.74% 4.60% 4.53% 4.34% 4.28% 4.94% 4.79% 4.68%
75% 5.02% 4.74% 4.60% 4.63% 4.39% 4.39% 4.94% 4.79% 4.68%
90% 5.49% 5.24% 5.19% 4.97% 4.79% 4.71% 5.34% 5.38% 5.18%

(1) First-time buyer rates based on a £200,000 property. Correct as of 3 January 2024. (2) Loan-to-value is the percentage of the property value you're borrowing as a mortgage.

Could mortgage rates fall further still? 

In 2024, approximately 1.6 million existing fixed-rate mortgage deals will expire, with most of these homeowners facing the prospect of remortgaging to a much higher interest rate. But HSBC's latest rate cuts means it'll offer – exclusively to those looking to remortgage – the best rates on two-year (4.49%), five-year (3.94%) and 10-year fixed (3.99%) mortgage deals, though borrowers will need to own at least 40% of their home to qualify.

David Hollingworth, of mortgage broker London & Country, said these cuts follow "hot on the heels of New Year improvements by Halifax, and others will be bound to follow suit". He added that fixed deals have been falling as markets are expecting the base rate to drop. 

Aaron Strutt, of mortgage broker Trinity Financial, adds that there is "a strong expectation that rates will come down".

However, no-one has a crystal ball, as Ray Boulger of broker John Charcol warns: "The market is now anticipating base rate cuts happening much quicker than the Bank of England's Monetary Policy Committee wants us to believe. But clearly the question remains: how far and how quickly rates will fall? And also whether the gilt market, and hence swap rates [which mortgages are linked to], are getting too far ahead of the game?" 

So, what are my remortgage options?

When fixed rates were higher last year, a popular option for those who didn't want to take out another fix was to temporarily move on to a tracker mortgage that didn't come with an early repayment charge (ERC) – as the interest rates on trackers were very competitive – meaning it was possible to switch to a fixed mortgage, penalty-free, once fixed interest rates had hopefully come down.

Unlike fixed deals, trackers have a variable rate of interest, typically linked to the UK base rate, meaning what you pay can change. However, right now the best two-year trackers (5.39%) are substantially more expensive than the best two-year fixes (4.6%), meaning you'd need fixed rates to come down a lot to compensate for having been on a higher tracker rate in the meantime.

You can re-fix in advance, even if your current deal isn't ending for a while. By doing this, at the very least you'll have insurance against any rate rises and potentially the flexibility to switch to a cheaper deal if one launches before your current rate ends (though check this first). The other advantage is that fixing gives you price certainty.

You can normally lock in a new mortgage deal up to six months before the end of your current one. We've got full details on the pros and cons of locking in early – including whether you'd be able to ditch a locked-in deal penalty-free – in our Getting ready to remortgage guide.

Of course without a crystal ball there's no way of knowing what will happen with interest rates over the next one, two, five years or longer. So when choosing how long to fix for, consider what's most important to you. The more you value cost certainty, the more you should hedge for a fix (over a tracker) and fix for longer. See our Should I fix my mortgage for five or 10 years? guide.

On your lender's SVR? You could save £1,000s with a new deal

There are 100,000s of homeowners on standard variable rates (SVRs) – the rate you pay once your current mortgage deal comes to an end. SVRs, as you'd expect, have a variable rate of interest, which means the rate can change at any time.

Not only that, but SVRs are normally far more expensive than the best fixed or tracker deals. Right now, a typical SVR stands in excess of 8%, as the table below demonstrates.

Typical standard variable rates (SVRs)

Lender Standard variable rate
Barclays 8.74%
Halifax 8.74%
HSBC 6.99%
Lloyds Bank 8.74%
Nationwide 7.99%
NatWest 8.24%
Santander 7.5%
Virgin Money 9.49%

Correct as of 3 January 2024. 

For many on an SVR, including those who have put off switching in the hope interest rates on fixed deals would come down, you should urgently consider locking in a fixed or tracker mortgage now.

Mr Hollingworth said: "It's understandable why people may want to hold off but falling onto a SVR will quickly destroy any small drop in interest rate and we just don't know how long these cuts to mortgage rates will continue for."

Here's how much you'd pay on a typical SVR compared with switching to a fixed or tracker deal:

Typical SVR vs cheap mortgage deals (1)

Mortgage Interest rate
Monthly cost
Yearly cost (2) Annual saving vs SVR
Typical SVR 8% £1,158 £13,896 -
2 year fix 4.59% £841 £10,801 £3,095
5 year fix 4.68% £849 £10,485 £3,501
10 year fix 4.89% £867 £10,508 £3,388
2 year tracker 5.39% £911 £11,435 £2,461

(1) Remortgage rates based on a £150,000 mortgage. (2) Factors in any fees. Correct as of 3 January 2024.

Don't forget to check for product transfer rates too

When you begin the hunt for a new mortgage, you'll have two options:

  1. Getting a new deal from your existing lender (known as a 'product transfer'). When it comes to a product transfer, most lenders let you lock in a new rate up to six months in advance. Product transfers are also typically quicker than remortgaging and often require less paperwork. The rates are very competitive at present and there are typically fewer fees involved compared with remortgaging.

  2. Getting a new deal from a different lender entirely (known as 'remortgaging'). If you're remortgaging, most lenders let you lock in a rate at least three months in advance, with many letting you secure a deal up to six months early. Though as outlined above, this process can involve more fees and longer, more thorough checks compared with product transfers.

Mortgage switch help – what you need to do

Struggling with your mortgage? See our What to do if you're struggling with your mortgage guide or – if you've already fallen behind on your mortgage repayments – our Mortgage arrears guide.

 

There's full mortgage-switching help in our free 62-page PDF Remortgage guide (there's also our free 53-page First-time buyers' guide). But in brief...

 

  1. Benchmark the rates out there. Our mortgage comparison tool will help you see what's available currently and compare it against what you're paying now.

  2. Dig out the details of your current mortgage. Such as... What's the rate? What type is it? When's the intro deal over? When must it all be repaid? Will you be penalised to switch deals? What's the loan-to-value (LTV)?

  3. Check out your existing lender's cheapest deal. Use this rate as a benchmark to beat. Check product transfers.

  4. If you've savings, use them to bag a cheaper deal. If you still owe more than 60% of your home's value on a mortgage, the more you can do to drop an LTV band, the cheaper your remortgage will be.

  5. Check out the size of any possible savings on our mortgage calculators. Stick your digits in here... Basic mortgage calculator – including what it'll cost | Compare two mortgages | Compare fixed-rate mortgages | 'How much can I borrow?' guesstimator.

  6. If you're thinking of applying, it's all about whether you'll be accepted. Lenders need to check if you're 'affordable' and whether you could meet repayments if rates shot up. So see our 17 ways to boost your mortgage chances and don't forget to check your credit report for free. Then read up on how to improve your ability to access credit.

  7. If you're serious, speak to a broker – they're currently more important than ever. See our full help on how to find a good broker.

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