HSBC has launched a 5-year fixed rate mortgage under 4%, the lowest rate since the infamous mini-budget in September 2022. Analysts expect to see a number of reduced rates on both 2-year and 5-year fixed-rate products in the coming weeks, with lenders keen to make up for a period of low activity towards the end of 2022. Borrowers can access HSBC's 5-year fixed rate mortgage product at 3.96% while its 2-year fixed rate mortgage is priced at 4.44%.
HSBC isn't the first lender to launch a sub 4% mortgage this year with Virgin Money being the first to launch a 10-year fixed-rate mortgage at 3.99% last week and in the last couple of days, subsequently releasing a market-leading 5-year fixed-rate deal at 3.96%. Falling mortgage rates will be welcome news to borrowers, with mortgage rates climbing as high as 6.5% last October.
Why are mortgage rates falling even though the Bank of England base rate is increasing?
The Bank of England base rate rose to 4% earlier this month, its highest level in 14 years and analysts believe it could peak at around 4.5% later this year. So how can lenders offer a fixed-rate mortgage that is below the current Bank of England base rate? The answer lies in where mortgage rates are likely to be in the longer term. Lenders use 'swap rates' in order to acquire fixed funding from financial institutions for a set period of time. A swap rate is when the two parties swap interest rate payments for another, with one party agreeing to receive a fixed-rate payment, while the other receives a variable payment. With longer-term projections hinting that 4.5% is the base rate peak followed by a gradual fall, banks can secure funds at lower rates thanks to the swap rate.
How low could mortgage rates go?
It is difficult to predict exactly where 2-year and 5-year fixed-rate mortgages will be in the coming months. With the swap rate currently averaging around 3.5%, we could see fixed-rate products continuing to fall as competition increases, however, it will be largely dependent on what happens to the Bank of England base rate in the coming months. The positive news for borrowers is that average mortgage rates are coming down, with rates now averaging around 5%, following the peak of around 6.5% back in October 2022. It is worth remembering that it was only two years ago when rates were as low as 1%, meaning many that were on a 2-year fixed rate mortgage will still be in for a shock when they come to remortgage in the coming months.
What now for those looking for a mortgage or to remortgage?
The announcement of a number of sub 4% mortgage deals is positive news for borrowers who can take comfort from the likelihood that other lenders are likely to follow suit. We provide further insight and analysis on interest rate predictions in our article 'When will interest rates rise (or in fact be cut)?'
If you are looking for a new mortgage or are due to remortgage this year then it would be wise to speak to a mortgage broker as soon as you can. In fact, even if you are currently on a fixed-rate mortgage, where the fixed period isn't due to end for another 6 months, you can still lock in a cheap rate now. The new mortgage will simply start when your current fixed deal ends and will avoid any need to pay exit fees or early redemption charges. Our article, 'Remortgaging in 2023 - is now the right time to fix & for how long?' provides additional insight.
If you don't have a mortgage broker then you could consider Habito*, a whole-of-market, independent mortgage broker that has access to over 90 lenders. It can help you to source the best deal for your individual circumstances and you can choose to complete the whole process online. Alternatively, you can find a mortgage broker in your area using VouchedFor* - a website that allows you to search for mortgage brokers that are local to you.
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