Mortgage deals below 4% return to market
After months of absence, mortgage deals with rates below 4% are making a comeback. Here's what you need to know.
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Mortgage deals with rates below 4% have been off the market for months, but that seems to be finally changing. Nationwide has made headlines this week after announcing it's launching a 5-year fixed rate deal at 3.99% for new home movers but with a fee of £1,499. This comes with rate reductions of up to 0.25% across its 2,3 and 5-year fixed-rate mortgage deals.
So what's the catch? This sub-4% deal is only available for those with a 40% deposit (60% LTV), and comes with a £1,499 fee. But its 85% LTV 5-year fix is also down to 4.50%, and its 80% LTV 2-year fix is down to 4.87%. So there are still options for those with smaller deposits, although you still need 15-20% of the total property price.
But this is a good sign - Nationwide is a market leader, so these latest rate cuts could cause a price war between other big lenders as they try to stay competitive. Other lenders have already lowered their rates ahead of an anticipated base rate cut in either August or September.
With this new deal Nationwide could absorb a lot of the first-time buyer market. Plus as a building society they offer the same rates to existing clients as they do new clients, so I’d expect them to hold on to a lot of their customers coming up for renewal. So I’d expect other lenders to follow suit and start cutting rates to stay competitive. My money will be on Barclays or Halifax next!
Perry Graves
Senior Mortgage Advisor at Tembo
Why are lenders cutting rates?
Lenders are facing a challenging market in the face of higher interest rates. In fact, TSB saw its profits fall by a quarter thanks to the weak mortgage market. Lenders are likely to be introducing these new low rates in an attempt to attract more borrowers; these new deals will certainly help get things moving.
The latest data from Rightmove shows that the UK average rent (excluding London) is at a record high of £1,314. With rental costs climbing and interest rates coming down, we're moving back to a scenario where buying is more cost-effective than renting on a monthly basis.
With a 3.99% rate, a buyer with a 15% deposit could afford a home worth up to £330,000*, while keeping monthly repayments similar to the average rent. This is particularly compelling when you consider that the average house price in the UK is around £300,000. Over the medium to long term, buying has always been a better financial decision, and this trend is set to continue.
*Based on a £280,500 mortgage with a 35-year term.
Conclusion
With mortgage deals below 4% re-entering the market, now is a prime time for first-time buyers to consider purchasing a home. The combination of high rental costs and low mortgage rates makes buying a financially savvy decision. Keep an eye on these deals, as they may be temporary, designed to boost lender volumes. If you're considering taking the plunge into homeownership, act swiftly to take advantage of these competitive rates.
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The interest rates shown are an indication only and are not guaranteed. Current rates may have changed by the time you come to apply.
