Mortgage deals have fallen below 4pc for the first time since the spring as a rates war heats up.
Nationwide has become the first high-street lender since April to offer a sub 4pc deal.
It is now offering a five-year fixed rate of 3.99pc to house buyers who have a 40pc deposit, although not to those remortgaging.
It follows rate reductions from other banks including HSBC this week, while NatWest, Barclays and Halifax have all reduced their fixed mortgage rates within the past month.
There are hopes that other lenders will follow in dropping their rates as swap rates – the main pricing mechanism for fixed rate mortgages – are currently well below the average rate for loans. Currently five-year swap rates are at 3.9pc while the average five-year fixed rate is 5.40pc according to analysts Moneyfacts.
Nicholas Mendes, of brokerage John Charcol, said: “Nationwide is the first lender to finally breach the 4pc benchmark following recent weeks of downward repricing. This is fantastic news for borrowers and signifies a significant change in the mortgage landscape after recent months of increased rates.
“Those remortgaging will need to wait a bit longer before we see rates below 4pc as well.”
He added that the move may prompt similar cuts from rival lenders competing for business.
Rachel Springall, of Moneyfacts, said: “Mortgage rates could fall further, but it is difficult to tell how quickly and by what margins.
“Those waiting for the Bank of England to cut base rate may be crossing their fingers for August, but this has split opinions among economists who are now pointing towards September at the earliest due to stubborn service inflation.”
The Bank of England has held interest rates at 5.25pc since August, following 14 consecutive rises from December 2021.
The next meeting of the Monetary Policy Committee (MPC) will be held on August 1, with the markets predicting a cut by November.
Higher mortgage rates have made it harder for first-time buyers to get on to the property ladder as affordability continues to be strained.
The average UK house price was £285,000 in May 2024, up £6,000 from May the year before. Assuming a 10pc deposit of £28,500, a borrower would need to be able to borrow 7.2 times the average UK wage of £35,828 in order to buy an average home.
Lenders are increasingly offering loans designed to help buyers overcome high prices.
Lender April Mortgages is now offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5pc. Both those buying alone and those buying with others can apply for the mortgage.
The company, which is part of an independent Dutch asset manager, DMFCO, has interest rates starting at 4.99pc, with an application fee of £195.
Previously, other lenders, including The Co-op Bank, Hodge and Kensington, have allowed “professionals” with a specified qualifications to borrow up to six times earnings, but most lenders typically allow customers to borrow up to four and a half or five times.
Experts have warned the larger loans may not be the best option, just as central interest rates are expected to fall.
Darryl Dhoffer, of brokers The Mortgage Expert, said: “My questions and potential concerns would surround any changes in borrowers’ circumstances and the ability to remortgage to other providers. This may not be optional if borrowing is maxed out to almost six times’ gross earnings.”
Adrian Anderson, a broker at Anderson Harris, said: “Borrowers need to think long term. If their circumstances change (if they start a family, for example) is a mortgage at six times’ income still going to be affordable if their outgoings increase?”
Skipton Building Society has also said it will allow first-time buyers to borrow up to five-and-a-half times their income, in an effort to support more borrowers on to the housing ladder.
The building society this week issued a report with Oxford Economics that found that less than half of workers earning £71,250 – more than twice the national average wage – could afford to buy a house where they currently live.
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