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Sub-5% Mortgage Rates: A Turning Point for UK Homeowners as Lenders Compete

 A two-year fixed-rate mortgage priced at below 5% has gone on sale for the first time since early summer as leading lenders jostle to attract more customers.

Mortgage brokers called Nationwide’s decision to launch the deal, priced at 4.99%, a “watershed moment” that would give the property market a “shot in the arm”, as well as offering borrowers hope that things were heading in the right direction.

The offer, available from Thursday, represents a reduction of 0.25 percentage points on the previous rate and is aimed at new customers moving home. However, those signing up must have a 40%-plus deposit or equity stake. Nationwide has also launched two-year fixes starting at 4.99% aimed at existing customers hoping to switch to a new deal.

The Bank of England’s decision earlier this month to keep interest rates unchanged at 5.25% for a second meeting in a row, prompting many economists to predict they will stay at or around that level for some time, has been credited with injecting a little more stability into the mortgage and housing markets.

Nicholas Mendes​, the head of marketing at the broker John Charcol, said: “It’s been a while since we’ve last seen a two-year fixed coupled with a rate that starts with ‘4’.”

He said there had been a fall in gilt yields in recent days, which feeds through to swap rates – one of the main factors in the pricing of fixed deals. “Lenders have acted quickly, with a flurry of repricing between the high street lenders.” 

Two-year fixed mortgages below 5% have not been available since around June. According to the data provider Moneyfacts, the average new two-year rate fell to 6.22% on Thursday – down from 6.85% at the start of August. The average new five-year fix was at 5.81% on Thursday – down from 6.37% on 1 August.

Nationwide building society said that over the last three months it had reduced its new home loan rates eight times.

Two leading surveys this month, from Halifax and Nationwide, have reported that UK house prices rose unexpectedly in October, while the rates on new mortgage deals have continued to nudge downwards as providers compete to pull in business and hit their lending targets.

Chris Sykes, a technical director at the broker Private Finance, said: “It’s great news.”

He added that when “one domino” fell, several others often followed. 

Lewis Shaw, at the broker Shaw Financial Services, said the new rates offered borrowers some hope. “These latest rates from Nationwide are a watershed moment … It should also mean we see other lenders follow suit, leading to a much more competitive market over the next few months when transaction levels drop naturally leading up to Christmas.”

Shaw said there was “still more pain to come for many households about to renew their mortgage over the coming months”, but added: “This may be at least a glimmer of light in what is still a very long tunnel.”

Despite the rate reductions, large numbers of people who took out deals priced at about 1% or 2% still face sizeable payment increases when those deals end.

There are about 800,000 homeowners with fixed-rate deals ending in the second half of 2023, while a further 1.6 million have mortgages due to expire in 2024.

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