If you’re thinking about purchasing a home or remortgaging, then now could be as good a time as any! Mortgage rates are at almost a two-year low since the recent decision by the Bank of England to cut the base interest rate by up to 5.25% to 5%. Many other banks and building societies are now following suit and slashing their mortgage rates in an attempt to lure customers. Let’s delve into the details and what it would mean for homeowners and would-be home purchasers.

A Pricing War Between Lenders

The interest rate cut by the Bank of England at the beginning of this month has rekindled the spirit of competition among lenders. Banks and building societies are now in a whirl of activity, competing with each other. That has driven mortgage rates down to levels not seen since they were indicating they would plunge during the turmoil of the Mini Budget, set by Liz Truss, in 2022.

Among the eye-catching deals is from NatWest, which has a new five-year fixed-rate mortgage at a rate of 3.83%. That, according to broker L&C, is the lowest rate on the market since September 2022. But NatWest isn’t alone in the market; indeed, seven of the UK’s top 10 lenders now have fixed-rate deals below 4%. Among them are big names like Barclays, Halifax, HSBC, and Nationwide.

Nationwide Leads the Pack

Nationwide was the first lender to break the 4% barrier last month with a 3.99% fixed-rate deal. It was the first big move to signal the end of the long period during which fixed rates remained above 4%. Other lenders followed, coming out very fast to give competitive deals for borrowers.

What is, therefore, making mortgage rates fall? It all goes back to the Bank of England lowering the base interest rate. When the base rate goes down, it becomes cheaper for banks to borrow money. They, in turn, pass these savings on to customers through lower mortgage rates. Great news for borrowers hunting for a good deal on their mortgage.

The Downside for Variable Rate Borrowers

But there’s no cause for universal rejoicing. For up to almost 600,000 homeowners now find themselves marooned on pricier standard variable rates (SVR). Moneyfacts says the average SVR is 8.16% – so the recent base rate cut doesn’t give these men and women much of a break.

While variable rate mortgages are linked directly to the base interest rate, they usually are still higher than the fixed rate deals. Thus, what really happens is that the public on variable deals is still paying much more than the base rate itself, which has effectively been cut. For such homeowners, it will make sense to switch now to a fixed rate to avoid the payment of thousands of extra dollars during the term of their loan.

Rising House Prices Add to the Challenge

As if the mortgage rate situation wasn’t complex enough, house prices are also on the rise. Asking prices across England and Wales increased by 0.2% in July, marking the seventh consecutive month of rising prices. Compared to last year, prices are up by 1.2%, according to the latest Home.co.uk Asking Price Index (HAPI).

Not all trends like these are common across the board, though. Those house prices were flat in North-West and South-East of England, as well as Wales and Scotland. So this regional variation means that some places prices were rising fast, others remained static.

What it Means for You

For those with fixed-rate mortgages, reduced rates offer an opportunity to remortgage and secure even lower rates, saving one a lot over the mortgage duration. Lower rates may mean it could become a little more affordable for first-time buyers to get onto the property ladder.

If you’re one of these borrowers on a variable rate, you may want to consider your options now. Though switching now would likely involve some upfront cost, the long-run savings could prove well worth it.

Looking Forward

With the ever-moving mortgage market, it is important to keep yourself posted and consider all the options available at hand. The recent cuts on interest rates may be an indication of some changes down the road, thus keeping a close eye on the market would help in terms of acting on a good deal once it comes your way. Whether you want to buy your first home, remortgage, or just get a deal that is better than your existing one, now may be the ideal time to move.

That drop in mortgage rates is indeed a very critical event that could also have serious implications for the housing market and individual homeowners. But by understanding current trends and seeing how your options are factored into them, you will be in a better position to take advantage of the situation and secure a mortgage deal that best meets your needs.