Mortgage rates are falling — how low could they go in 2024?
More than 30 British lenders have slashed their home loan rates in the last two weeks as 2024 kicks off with a mortgage price war.
Barclays, Santander, Virgin Money and Co-op Bank this week joined HSBC, Halifax and Natwest as high street banks offering new deals on their mortgage products.
Barclays cut its two-year fixed deal by up to 0.5 per cent. Santander lowered its rates by up to 0.82 per cent for new customers.
Co-op Bank became the first lender to offer sub-four per cent fixed rates on its two-year products, starting at 3.84 per cent. It now also offers the best five-year deal on the market at 3.74 per cent.
The next lowest deals – discounting additional fees and interest payment timelines – are currently offered by HSBC (3.91 per cent), First Direct (3.99 per cent), MPowered Mortgages (4.13 per cent) and Bank of Ireland UK (4.19 per cent).
The average two-year fixed rate currently stands at 5.69 per cent, while the average five-year deal is 5.29 per cent, according to financial information website Moneyfacts.
Despite the recent fall in rates, many existing borrowers with even cheaper deals are set to face high remortgaging costs when some 1.6m fixed-rate products expire this year.
“Lenders are keen to offer rates that will make them the first choice for these borrowers,” said Kevin Roberts, managing director of Legal & General Mortgage Services.
Banks are vying for business in a market that has been shrunk by high interest rates, forcing them to offer more attractive deals.
Meanwhile, lenders are repricing their products in the hope that the Bank of England will respond to promising signs on inflation by cutting the base rate as soon as March.
Mortgage rates are influenced by SONIA swap rates – the main interest rate benchmark in sterling markets. Lenders’ margins on swaps are often between 0.3 and 0.5 per cent.
Swaps have steadily fallen since the summer but ticked up this week amid uncertainty over whether central banks around the world will meet markets’ expectations of aggressive interest rate cuts in the coming months.
Despite deals rapidly falling below four per cent in recent weeks, brokers have warned that sub-three per cent rates are unlikely anytime soon.
Chris Sykes, technical director at Private Finance, told CityAM that the number of mortgage rate reductions would likely slow if swaps continued to rise, with “less meat on the bone for lenders”.
“The only situation we’d likely see sub-three per cent rates is if there are giant or percentage-based product fees attached to them, like we often get in the buy-to-let market,” he added.
Peter Stimson, head of product at MPowered Mortgages, noted that lenders were expecting a “very challenging” year for home loan volumes.
“We anticipate rates largely stabilising in the weeks and months ahead as future rate cuts have largely been priced into the swap curve,” he said.
“Whilst we think three per cent rates in 2024 are unlikely at the moment, in the second half of the year, as we approach a general election, things are likely to get more uncertain.”
Roberts added: “Easing inflation is lifting hopes that the base rate may change faster than expected in 2024, and the financial markets have priced this in, but even if that doesn’t happen, confidence within the market is still growing.
“If recent sharp rises and falls in rates teach us anything, it is that predicting this market is not easy.”
The number of mortgage options for borrowers reached its highest level in almost 16 years between December and January, according to Moneyfacts.
It also found that average two and five-year fixed mortgage rates fell for a fifth straight month to their lowest level since last June.
Bank of England Governor Andrew Bailey said on Wednesday that he hoped mortgage rates would keep falling.