Best UK mortgage deals of the week

Pedro Goncalves
Updated

More deals under 4% are now on the market for those wanting to become home owners following the Bank of England's decision to cut interest rates but overall mortgage rates actually went up slightly this week.

The average rate on a two-year fixed deal this week stood at 5.95%, higher than last week's 5.94%, while rates for a five-year deal came in at 5.39%, also higher than the previous 5.29%, according to figures from Uswitch.

The Bank of England cut interest rates to 5% at its August Monetary Policy Committee (MPC) meeting, the first reduction of the UK’s base rate in four years.

In a finely balanced decision, five committee members voted in favour of cutting rates, versus four who preferred to keep them unchanged.

HSBC, NatWest, Virgin Money (VMUK.L), MPowered, Leeds Building Society and Skipton Building Society have all made mortgage rate reductions in recent days.

NatWest has joined Nationwide Building Society in offering deals under 4%, in a sign that lenders are bringing down mortgage rates, which should provide some relief for those trying to buy a home.

NatWest's 3.97% five-year deal comes with a £1,495 fee and beats Nationwide's 3.99% deal. However, HSBC has launched a 3.95% that the lender said “set a new benchmark” in the market.

HSBC (HSBA.L)has launched the cheapest mortgage on the market this week at a rate of 3.95% for a five-year deal.

Looking at the two-year options, the lowest rate comes in at 4.41% with a £999 fee, lower than last week's deal.

Both cases assume a 60% loan to value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.90% or 5.41% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

“The significant aspect of HSBC’s offer is the combination of a low rate and a manageable fee, making this deal highly attractive,” said Nick Mendes of John Charcol brokers.

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NatWest (NWG.L) has also crossed the threshold of under 4% deals, offering 3.97% for a five-year deal with a £1,495 fee.

The minimum loan is £250,000, with early repayment charges (ERCs) starting at 4.5% in the first year, falling to 4.25%, then to 4%, 2.5% and finally 1%.

For a two-year fix, rates have also been cut, with the cheapest deal now coming in at 4.41%, lower than last week's 4.48%.

In both cases, you'll need at least a 40% deposit to qualify for the rates.

At Santander (BNC.L) a five-year fix comes in at 4.13%, assuming you have a 40% deposit — unchanged from last week's offer.

For a two-year deal, the cheapest customers can get is 4.51% also unchanged.

Barclays (BARC.L) has also cut rates but has not launched any below 4% deals. Its cheapest five-year deal for prospective homebuyers with a 40% deposit (60% LTV) comes in at 4.03%, with an £899 fee, lower than last week’s 4.04%.

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When it comes to two-year mortgage deals, the lowest you can get is 4.39%, also lower than the previous 4.42%.

Nationwide (NBS.L) offers a five-year fix for purchase at 3.99%, unchanged from last week. The deal comes with a £1,499 fee and requires a 40% deposit. It also only applies to loans of £300,000 or more.

Nationwide offers a two-year fixed rate for home purchase at 4.65% with a £999 fee — also for borrowers with a 40% deposit.

Other deals include

  • Five-year fixed rate at 85% LTV with a £999 fee at 4.55%

  • Two-year fixed rate at 85% LTV with a £999 fee at 4.95%

  • Five-year fixed rate at 60% LTV with a £1,4992 fee at 4.34%

  • Five-year fixed rate at 60% LTV with a £999 fee at 4.39%

Halifax, the UK’s biggest mortgage lender, offers a two-year fixed rate of 4.46% with a £999 fee for first-time buyers.

The lender, owned by Lloyds (LLOY.L) has a five-year rate going for 4.06% (also 60% LTV), lower than last week’s 4.18%.

It also offers a 10-year deal with a mortgage rate of 4.93%. These are all unchanged from last week’s offers.

With mortgages below 4% back on the market, prospective homeowners are starting to have some choice when it comes to finding a good deal.

HSBC is currently the cheapest deal on the market. However, its 3.95% deal requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. NatWest is close, with a 3.97% deal for a five-year fix, followed by Nationwide's 3.99%.

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago, banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit. Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

This means first-time buyers could get on the ladder with as little as a 1% deposit.

Also, lender April Mortgages is now offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.

The company, which is part of an independent Dutch asset manager DMFCO has interest rates starting at 4.99%, with an application fee of £195.

Skipton Building Society has also said it will allow first-time buyers to borrow up to five-and-a-half times their income, in an effort to support more borrowers on to the housing ladder.

Mortgage holders and debt borrowers have been forced to pay record-high repayments in recent years due to the UK's hiked base rate being passed onto customers by banks and building societies. Until now, the consensus was that interest rates have peaked and that 2024 will see rate cuts as inflation eases.

However, even with inflation falling to target, traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

Matt Smith, Rightmove’s mortgage expert, said: “The highly anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue.

"This sets us up for hopefully further cuts to come, and when we have seen further reductions to the Base Rate, people should really start to see the impact. However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%."

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

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