Fixed-rate mortgages may dip below 4% in the coming weeks due to an intensifying mortgage price war
TSB has implemented significant reductions, slashing up to 0.35 percentage points from its home loan costs starting today.
This move is part of a recent trend, with lenders like HSBC, Virgin Money, and the Co-op announcing rate cuts this week.
Some brokers, predict that a five-year fixed-rate deal at 3.99% could emerge by the beginning of next year.
The Bank of England's decision to maintain its base rate at 5.25% for the third consecutive time has contributed to optimism that mortgage costs may have peaked.
The financial markets are now anticipating a potential one-percentage-point decrease in interest rates to 4.25% by the end of the next year.
Despite Bank of England Governor Andrew Bailey acknowledging progress in the battle against inflation, there is lingering uncertainty. Traders speculate that a Bank rate cut may occur as early as May next year, with a near one-in-three chance of it happening by March.
Comments from Jerome Powell, the head of the Federal Reserve, hinting that the rate rise cycle may have peaked, further bolstered confidence. Should the Bank of England follow suit with other central banks in cutting rates, it could relieve pressure on the 1.5 million borrowers needing to remortgage next year.
However, even with falling mortgage rates, homeowners face higher remortgage rates compared to their initial deals. The average two-year fixed-rate mortgage has risen to 5.98%, up from 2.34% before the initial base rate increase in December 2021. A homeowner with a £150,000, 25-year loan could see monthly payments rise from £661 to £965 if they remortgage now.
Five-year fixes have also surged to 5.58%, more than double the rate from two years ago. Opting for a new five-year deal would mean a monthly payment increase from £683 to £928 for the same homeowner.
The Bank of England has been increasing interest rates to combat inflation, which peaked at 11.1% last autumn due to the conflict in Ukraine causing spikes in energy and food prices. Although inflation has reduced to 4.6%, the Bank remains cautious, aiming to bring it down to the target of 2%.
In addition, the Bank revised its growth expectations, now forecasting zero growth for the three-month period to December, marking a downgrade from its previous outlook.
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