Lenders cut two-year fixed mortgages below 3.8% as markets bet on November rate cut

The cheapest two-year fixed-rate mortgages have fallen below 3.8% for the first time in four years after three of Britain’s six largest lenders cut their rates on Friday, in a sign that markets are increasingly confident the Bank of England will reduce interest rates again next month.

The repricing followed inflation figures on Wednesday showing consumer prices rising at 2.4% in September, below the 2.7% that economists had forecast and the closest the measure has come to the Bank’s 2% target since 2021. Swap rates, which lenders use to price fixed deals, fell by about 15 basis points over the week.

Borrowers with a deposit or equity of at least 40% can now fix for two years at 3.74% with one of the big six banks, and at 3.79% with two others, down from about 4.1% in the summer. Five-year fixes have fallen less, with the best deals at 3.85%, reflecting a market view that rates will not fall much below 3% over the longer term. The Bank’s base rate stands at 3.75% after cuts in May and August.

“This is the first time since the mini-budget of 2022 that a borrower with a decent deposit can get a fix beginning with a three for two years,” said Marcus Delahunty, head of mortgages at the broker John Charcol. “About 1.4m people are coming off fixed deals in the next 12 months, most of them on rates around 2% from 2021. They are still going to pay more. But the cliff is a lot less steep than it looked a year ago.”

The average borrower refinancing from a 2% deal to a 3.8% one on a £200,000 loan will pay about £190 more a month, down from the £330 increase that those who refinanced at the peak in 2023 faced. UK Finance, the banking trade body, said arrears had stabilised at about 1% of outstanding mortgages, below the level it had feared when rates first rose.

Economists are divided on whether the Bank will cut in November or wait until February. The Bank’s governor said last month that the Monetary Policy Committee wanted to see “sustained evidence” that services inflation, still running at 4.1%, was falling before easing further. Wage growth has slowed to 3.9% but remains above the level the Bank regards as consistent with its target.

“The MPC has been burned before by cutting into a market that then did its job for it,” said Dr Priya Venkatesan, chief UK economist at a City consultancy. “Mortgage rates have come down sharply without the Bank doing anything. That is both a reason to cut, because conditions are easing, and a reason not to, because they already have.”

Housing market data remains weak, with completed transactions in August the lowest for that month since 2015 and asking prices flat on the year. Estate agents said the lower rates had already brought more buyers through the door this week.