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Mortgage rates drop below 4% for the first time since April – but will they get any cheaper?

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Kit Sproson
Kit Sproson
Senior Money Writer – Mortgages Expert
Created 30 July 2024 | Edited 7 August 2024

Fixed-rate mortgage deals have dropped below 4% for the first time since April – though only for those with at least a 40% deposit or equity in their home. However, mortgage brokers say rates could continue to fall as the year goes on – so what, if anything, should you do about it?

Renewed competition between lenders has seen fixed-rate deals getting noticeably cheaper for those with bigger deposits or more equity, with two-year fixes now starting from 4.28% and five-year fixes from 3.99%.

This improvement in rates means the top five-year fixes now cost around £18 a month less per £100,000 owed (or around £220 a year) compared to just a couple of months ago.

However, those with smaller deposits or less equity in their home aren't benefitting as much, as rates on 90% loan-to-value (LTV) mortgages have only fractionally improved.

The direction of fixed-rate mortgages (1)

LTV (2)

Cheap two-year fix

Cheap five-year fix

Cheap 10-year fix

1 Mar

1 Apr

1 May

1 Jun

30 Jul

1 Mar

1 Apr

1 May

1 Jun

30 Jul

1 Mar

1 Apr

1 May

1 Jun

30 Jul

60%

3.93%

4.13%

4.33%

4.33%

4.28%

3.92%

3.99%

4.14%

4.31%

3.99%

4.62%

4.62%

4.64%

4.64%

4.64%

75%

4.03%

4.23%

4.43%

4.43%

4.43%

4.01%

4.19%

4.34%

4.44%

4.14%

4.62%

4.62%

4.64%

4.64%

4.64%

80%

4.24%

4.44%

4.64%

4.64%

4.64%

4.03%

4.24%

4.45%

4.53%

4.40%

4.79%

4.79%

4.79%

4.79%

4.79%

90%

4.69%

4.89%

5.06%

5.09%

5.01%

4.41%

4.62%

4.64%

4.71%

4.68%

5.08%

5.08%

5.28%

5.28%

5.28%

(1) Based on a £250,000 property. (2) Loan-to-value is the percentage of the property value you're borrowing as a mortgage. Source: Moneyfactscompare.co.uk

Fixed rates could keep falling

Ray Boulger, of broker John Charcol, says more cuts are likely as lenders expect gilt yields and swap rates (which mortgages are indirectly linked to) to continue improving. He said: "With inflation now down to the Bank of England's 2% target level, I expect the falling trend in the cost of fixed rates to continue through to next year as the market anticipates a cut to the base rate, with a 3.5% five-year fixed rate on the cards by early 2025."

Similarly, Aaron Strutt, of broker Trinity Financial, said he believed there is "scope for rates to come down some more". Though he added that purchase rates are likely to remain the cheapest. He said: "Lenders are still trying to stimulate the property market... They do not need to work quite so hard to get remortgages business because there are so many borrowers that need to switch deals before the end of this year."

Malcolm Davidson, of broker UK Moneyman, believes lenders "won't want a competitor [Nationwide is offering the 3.99% rate] to grab all the market share". However he added: "It's not always what's happening in the economy that affects interest rates; it's the ability of lenders to service the demand for a particular product."

David Hollingworth of broker L&C Mortgages was more cautious. He said: "I'm not sure that swap rates are low enough for all lenders to rush in below 4%. Let's see what the tone of the base rate decision is on 1 August – that could help to see a reduction if it sounds more likely that cuts will be more than a single one this year."

Tracker rates haven't budged – for now

In comparison to fixed-rate mortgages, tracker mortgages – which tend to follow the Bank of England's base rate – have remained static for coming up to a year now, as the base rate hasn't changed since August 2023.

The gap between the cheapest tracker and fixed-rate mortgage has also continued to widen. The top two-year tracker is currently 5.39%, compared to the top two-year fix at 4.28% – equivalent to £65 a month or £780 a year in repayments per £100,000 owed.

However, a base rate cut is widely expected this year. The Bank's next decision is on Thursday 1 August. If it falls, this would mean those with tracker mortgages would see an immediate improvement to the rate they pay (unlike fixed mortgages, where the rate stays the same for the length of the deal).

Should I wait to get a new mortgage or switch now? And should I fix or track?

If you're one of the 700,000 homeowners with a mortgage deal ending in the second half of 2024, what to do next is a tricky question to answer. Here are a couple of options if you want some flexibility:

  1. Consider temporarily moving on to a tracker mortgage. Some trackers don't have early repayment charges, meaning you could switch to a fixed mortgage penalty-free once you're ready. But all trackers have a variable rate of interest, meaning what you pay can change. 

    Plus, as set out above, trackers are substantially more expensive than fixes right now, meaning you'd need fixed rates to come down a lot to compensate for having been on a higher tracker rate in the meantime. While this gap will probably narrow if the base rate is cut, you'd still need to see a marked improvement in fixed rates for this strategy to work out. So for many it's best to...

  2. Arrange a new fix in advance. By locking in a new fix early, not only will you have an insurance against interest rates going up, but you'll also potentially have the flexibility to switch to a cheaper deal, for free, if one launches before your current rate ends (though check this with the lender 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.

Ultimately, 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 can likely save £1,000s with a new deal

A standard variable rate (SVR) is the rate you pay once your current mortgage deal comes to an end. SVRs 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 is more than 8%.

So if you're on an SVR, including those who have put off switching in the hope interest rates on fixed deals will come down, you should consider locking in a fixed or tracker mortgage now.

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

4.28%

£815

£9,780

£4,116

5 year fix

3.99%

£791

£9,492

£4,404

10 year fix

4.64%

£846

£10,152

£3,774

2 year tracker

5.39%

£912

£10,944

£2,952

(1) Based on a £150,000 mortgage at 60% LTV and ignores fees. Correct as of 30 July 2024. 

Remember to check what deals your current lender is offering

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'). Product transfers are 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'). Though his 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 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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Mortgage rates drop below 4% for the first time since April

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