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A mortgage price war is been hotting up, with the prospect that the cheapest home loans could break the sub-3% barrier next year, bringing much-needed relief for borrowers after years of pain
Mortgage deals could slump below 3% in a boost to millions of cash-strapped borrowers, experts predict.
The Bank of England froze its base rate as expected yesterday (Thurs), but hinted at a cut to come. Its rate-setting monetary policy committee (MPC) is next due to meet in November. Governor Andrew Bailey said inflationary pressures were easing, adding: “If that continues, we should be able to reduce rates gradually over time.”
Lenders anticipating firther cuts have stepped up a price war on fixed rate mortgages. Some two and five year fixed deals are already down to just over 3.80%.
Brokers now believe that, if inflation stays low, some lenders will launch sub-3% deals next year. That would be welcome relief to both those taking out a new mortgage and existing borrowing looking for a new deal. Yet many households are already reeling from a rate shock after coming off previously cheap deals and then having to remortgage over the past three years, after the Bank hiked its base rate to 5.25% to try to cool inflation.
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said: “As interest rates continue their downward dance, a mad dash to rock-bottom rates has begun. However, this could be just the beginning of a larger downward trend. There is someway to go but you may no longer need a time machine to see mortgage rates beginning with a two”.
Simon Bridgland, director at Release Freedom, said “a mortgage rate close to sub-3% is very much possible by the end of next year.” But he cautioned: “Don’t expect to get anywhere near the ultra-low rates we all enjoyed a few years ago, as that ship has long sailed with only one-way tickets.”
Ben Perks, managing director at Orchard Financial Advisers, said: “A sub-3% interest rate would be like a dream come true in 2025 and it’s not completely outside the realms of possibility.
“Any rates beginning with a two would be reserved for low loan-to-values and longer fixed terms.”
Eight of the nine members on the MPC voted to keep the base rate unchanged at 5% yesterday. It comes a month after the central bank cut rates from 5.25% – the first reduction since 2020.
Laura Suter, director of personal finance at City firm AJ Bell, said: “Interest rates are still expected to end the year at 4.5% – signalling two successive cuts before Christmas.
“That would be the best present that wannabe homeowners could get, with a mortgage rates war already hotting up. There has been a flurry of interest rate cuts to mortgages in the past few weeks, as banks and building societies have pushed out new deals for homeowners. But at the same time savers have been hit with cuts to rates since the August MPC meeting.”
TUC General Secretary Paul Nowak said: “The time is right for the Bank of England to make another rate cut. Households are in desperate need of relief, with several years of steep price rises coming on top of the longest pay squeeze in modern history. Inflation is now falling across most high-level categories, and the economy needs the boost that a further rate cut would bring.”
