Earlier this month, the central bank reduced its headline Bank Rate by 0.25 percentage points to 5pc. With this month’s inflation figure beating expectations, it has raised hopes of further cuts later this year, reducing the cost of borrowing.
Adrian Anderson, managing director at brokerage Anderson Harris, said: “If fixed mortgage rates continue to fall, I will not be surprised to see market leading five-year fixed rates at circa 3.5pc and market leading two-year fixed rates at sub 4pc by the end of the year. Rates at this level will help buyers’ affordability.
“There is plenty of demand from buyers who have been putting off a move because of high mortgage rates, hence cheaper mortgage pricing could encourage buyers back into the market.”
Swap rates – the main pricing mechanism for fixed rate mortgages – have been falling slowly over the past month giving lenders space to pass savings on to borrowers.
The average two-year fixed residential mortgage rate is currently 5.62pc, according to analyst Moneyfacts, and the average five-year rate is 5.25pc.
However, experts have warned that the lowest rate may not necessarily be the best deal and that while rates are falling, lenders are increasing the fees they charge borrowers.
The average fee on a fixed rate loan has risen by £10 since the start of July, according to Moneyfacts. For all deals, the increase is £8, excluding those that advertise no fee.
Rachel Springall, said: “Borrowers eyeing up a new mortgage deal as rates are cut would be wise not to rush and ensure they consider the overall true cost package, as the average mortgage fee has crept up.
“Some deals may have headline-grabbing rates, but these can also charge a high upfront fee.
“Those borrowers looking to remortgage right now will find some of the lowest rates can cost them more than £1,000 in a product fee, but a mortgage with a slightly higher initial fixed rate and lower product fee could be a better package based on true cost.”
NatWest’s 3.83pc headline rate, for instance, comes with a £1,495 fee. HSBC and Barclays, however, have five-year loans at 4.84pc, but charge £999 and £899 respectively.
Moneyfacts analyst Rachel Springall, said: “Borrowers eyeing up a new mortgage deal as rates are cut would be wise not to rush and ensure they consider the overall true cost package, as the average mortgage fee has crept up. Some deals may have headline-grabbing rates, but these can also charge a high upfront fee.
“Those borrowers looking to remortgage right now will find some of the lowest rates can cost them more than £1,000 in a product fee, but a mortgage with a slightly higher initial fixed rate and lower product fee could be a better package based on true cost.”
