Two major UK lenders, Santander and Barclays, have introduced mortgage deals with interest rates below 4%, marking the first time such rates have been seen since November 2024. This move signals increasing competition in the mortgage market, fuelled by expectations of further Bank of England base rate cuts.
However, these sub-4% deals come with conditions and won’t be available to all borrowers. They require a 40% deposit and may include high fees, making them less accessible to first-time buyers and those with smaller deposits.
Why Are Mortgage Rates Falling?
- The Bank of England recently cut its base rate to 4.5% and is expected to lower it further in 2025.
- As a result, mortgage lenders are adjusting their rates downward, with many expected to follow Santander and Barclays in offering more competitive deals.
- The average rate on a two-year fixed mortgage remains 5.48%, while a five-year fixed deal is at 5.29% (Moneyfacts, 12 Feb 2025).
Rachel Springall of Moneyfacts noted:
“It was only a matter of time before sub-4% mortgages returned. Big lenders making this move often prompt their peers to follow suit.”
What Does This Mean for Borrowers?
- Tracker & Variable Mortgages: These will adjust in line with the base rate, potentially bringing lower repayments for those on flexible-rate deals.
- Fixed-Rate Mortgages: Over 80% of UK borrowers are on fixed-rate deals. Their payments remain the same until their deal expires, but renewals could become cheaper if rates continue to fall.
- Mortgage Renewals: Around 800,000 fixed-rate mortgages with sub-3% rates are set to expire each year until 2027, meaning homeowners looking for a new deal could still face higher repayments—though less severe than previously expected.
If your mortgage is coming up for renewal, and you have already selected a new product, it may be possible to review your options and switch to a better rate.
If your current product is coming up for renewal in the next six months you can take advantage of products available on the market now, while maintaining the flexibility to keep reviewing your options should better products and rates become available before your current product expires.
A mortgage broker will monitor rates and inform you when better products become available. If you go direct to a lender they will not offer this service so the onus will be on you to monitor the market and react to future rate changes.
Will Mortgage Rates Keep Dropping?
- Markets predict further Bank of England rate cuts in 2025, meaning mortgage providers are likely to continue reducing rates.
- Governor Andrew Bailey has indicated that rate cuts will be gradual and depend on economic conditions.
The next Bank of England rate decision is set for 20 March, which could influence the direction of mortgage rates.
What Should Borrowers Watch Out For?
- Large Fees: Some sub-4% mortgage deals come with high arrangement fees, which could offset the benefit of a lower interest rate.
- Eligibility Requirements: These deals typically require a 40% deposit, which many borrowers—especially first-time buyers—may struggle to meet.
- Market Conditions: If more lenders introduce sub-4% deals, competition could push mortgage rates even lower in the coming months.
What’s Next for the Housing Market?
- If mortgage rates continue to fall, demand for homes could increase, leading to a more active housing market.
- The Royal Institution of Chartered Surveyors (RICS) expects market activity to pick up in the coming months, following a slow start to 2025.
For now, borrowers should compare deals carefully and check if switching to a lower rate makes financial sense. More rate cuts could be on the horizon, making it a good time for homeowners to review their mortgage options. It is always recommend you seek expert advice when taking a mortgage or loan secured against your property.
