January 2024 has brought some long-awaited good news for wannabe homeowners and people with looming mortgages renewals.
Banks have begun competing to lower the interest rates on their fixed-rate mortgage offerings, which means that first-time buyers and homeowners about to come off their current deals are in luck.
HSBC was the first of the 'big six' lenders to bring back fixed-term mortgages on an interest rate below 4 per cent.
First Direct is now also offering some five-year fixed-rate mortgages with interest rates below 4 per cent, while TSB has cut some of its two year fixes.
Halifax, the UK's largest mortgage lender, is now offering 3.89 per cent five year fixed-rate mortgages – although buyers will need a 40 per cent deposit. NatWest has lowered its rates by 0.42 per cent.
“Many of the banks and building societies were also dramatically down on their overall mortgage lending last year and they won’t want a repeat performance,” Aaron Strutt, product and communications director of Trinity Financial told Homes & Property.
“Some of the lenders have made some chunky rate reductions to kick off the year and they are likely to come down further.”
This has created competition between banks to attract borrowers – the mortgage price wars that home buyers stand to benefit from.
“The banks have got strong balance sheets, they’re keep to lend, and they’ll be trying to price mortgages as competitively as they can to try and get more money out the door,” Adrian Anderson, director of property finance specialists Anderson Harris told Homes & Property.
While the Bank of England has been holding the base rate at 5.25 per cent, the market is predicting that interest rates will come down faster than the UK central bank says it will, and banks are reacting accordingly.
“We are in an unusual situation where the cheapest fixes are now 1.30 per cent below the base rate,” said Strutt.
With the competition heating up, mortgage rates are dropping and more people could be eligible, Mark Harris, chief executive of mortgage broker SPF Private Clients, told Homes & Property.
"Not only will mortgage payments be lower, the stress rate at which the application is tested against may also be lower too, meaning the borrower may be able to achieve their target loan amount when they couldn’t before."
Go time for first-time buyers
First-time buyers began to dominate the mortgage market last year, and that doesn’t show signs of slowing down in 2024.
“It’s a good time to be getting on the property ladder, because it does look like we’re nearing the very bottom of the market in terms of house prices,” said Anderson.
“You should be getting onto the ladder when the time is right for you personally and financially. But in terms of where the market is now, it does look like it’s a good time.”
While the chairman of NatWest has been slammed for suggesting it's not "that difficult at the moment" to save for a house deposit (please), those in a position to make the leap into homeownership can take heart from the mortgage price wars.
“House prices are so high compared to people’s incomes that it’s difficult for most people to get on the ladder,” said Anderson.
“It’s obviously a really anxious time and it’s a big financial commitment. If fixed-rate pricing comes down it helps with affordability and will give first-time buyers more confidence to make the leap and get onto the ladder.”
Unlike second-steppers bracing for higher interest rates and a hit to their lifestyles once their fixed-rate mortgage ends, people coming out of private rentals have a higher pain tolerance.
“First-time buyers are used to paying a higher rent and they’re not used to cheap rates,” said Anderson.
While the current rates favour those with larger deposits, those with smaller deposits can look forward to more favourable rates too, said Anderson.
“Many people have been putting off buying because of the high rates, but mortgages are certainly more affordable than they were,” he said
Don’t delay, remortgage today
For the 1.6 million people in the UK due to come off their fixed-rate mortgages in 2024, now is the time to act.
“It’s definitely good news for people who have to fix again,” said Anderson.
But even with the price wars raging, it’s not wise to hold out in the hopes a better deal might be coming up.
“Even though the prediction is that mortgage rates will most likely continue to fall, my advice to people who are re-mortgaging is to take action now,” he said.
“Don’t put it off because you think it might get cheaper. Secure a mortgage rate now even if your rates not coming off for another six months.
“Even if they do get cheaper, it may not be a straight line. The markets have surprised us so many times.”
As well as peace of mind, securing a mortgage rate today can give you room to negotiate if banks drop their rates even further.
“Lock in a rate now, because if you get a mortgage letter today but you’re not drawing your rate down for another six months, most banks will allow you to jump onto that cheaper rate before that mortgage draws down,” said Anderson.
How to get the best mortgage deal
It's important to strike while the iron is hot, so get your finances in order now.
“Those planning on buying or remortgaging this year should get organised," said Harris.
"Make sure you have all your paperwork (accounts, payslips, P60s etc) to hand. Some lenders may have limited tranches of funds and it the rate is popular, it could be withdrawn at short notice so you will need to be quick," he added.
“Improve your credit attractiveness by making sure you pay bills on time and are on the electoral roll. Remove incorrect financial issues from your credit file, maintain a small amount of credit to demonstrate you can handle it responsibly and close old or unused cards."
Be sure to shop around between lenders to ensure you’re getting the best possible deal.
“It is even more important than usual to make sure you are getting the cheapest rate,” advised Strutt.
“Some lenders have not lowered their prices yet, so their deals are more expensive than their competitors.”
If you are planning on re-mortgaging early and taking advantage of a potentially lower rate in a few months time, Anderson advises you to stick to the mainstream lenders.
“It’s a good idea to consider one of the larger high street banks, because those banks are most likely to continue to have cheap rates throughout the rest of the year,” he suggested.
It’s also on the lender to keep an eye on the best deals available.
“If you find a property to buy and your mortgage offer is produced, make sure you keep checking to see if the rates are cheaper and swap to the lower rate,” said Strutt.
“They’re only going to produce a cheaper mortgage rate if you ask them to,” agreed Anderson.
“If you’re re-mortgaging now, take action, but continue to monitor the rates that are available because the bank is not going to be contacting you to tell you the rates are cheaper, you need to contact the bank if you’ve noticed that the rates have gone down.”
If you’re coming off a fixed-rate mortgage that lasted two or five years, it could be worth getting your house revalued to ensure you’re on the best possible deal.
"The loan-to-value – the amount of mortgage you have compared to the value of the property – could be quite important. You might be on the cusp of a cheaper loan-to-value bracket.”
Be aware also that banks affordability criteria have become stricter since the last time you secured a mortgage, too.
“If you’re remortgaging and you’re going to go to another lender, it’s good to check you’re still going to meet the affordability checks of that lender,” advised Anderson
“Lenders use different affordability calculations to determine how much they will lend you,” said Strutt.
“Some offer more generous loans if you are a first-time buyer, professional or higher earner.”
And if finding the best deal and understanding banks’ affordability criteria is stressing you out, don’t be afraid to go to an independent expert.
“I would say this because I’m a mortgage broker – but I definitely suggest people reach out to an independent mortgage broker,” said Anderson.
“They will have access to the market-leading rates, they will know the criteria of all of the banks, and they will be able to help someone who is taking a mortgage navigate their way.”
