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Nationwide has become the first large lender in months to offer a 5-year mortgage deal at an interest rate below 4 per cent, as lower borrowing costs breathe optimism into the housing market.
The building society said that from Wednesday it would cut the interest rate on a range of loans. Its five-year fixed rate for borrowers with at least a 40 per cent deposit will fall by 0.19 percentage points to 3.99 per cent.
The reappearance of a mainstream lending rate starting with a three has been identified by brokers as a key milestone for the market, which may entice more buyers to move forward with purchases.
Brokers expect other lenders will soon follow suit in order to compete for business for borrowers.
“Nationwide is the first lender to finally breach the 4 per cent benchmark following recent weeks of downward repricing,” said Nicholas Mendes, mortgage technical manager at broker John Charcol.
“This is fantastic news for borrowers and a significant change in the mortgage landscape after recent months of increased rates,” he added.
Most major lenders raised their rates in February as market interest rate expectations shifted, with the final comparable deal below 4 per cent pulled in April, according to Moneyfacts.
Mortgage rates have fallen in recent weeks as markets anticipate the Bank of England will cut its benchmark interest rate in August or September from a 16-year high of 5.25 per cent.
The 3.99 per cent rate from Nationwide is currently only available to home buyers, not customers switching from an existing fixed-rate deal, and carries a higher fee of £1,499 fee.
Aaron Strutt, a director at broker Trinity Financial, said lenders were offering lower rates to buyers because they are “still trying to stimulate the property market” and they “do not need to work quite so hard to get remortgage business”.
The BoE warned in June that millions of homeowners with mortgages had not yet felt the impact of higher rates because they are still on cheaper fixed-rate deals.
Cheaper rates will help to stimulate the property market, which has been slowly recovering for a 10-year low in home sales last year. The sharp rise in interest rates since 2022 has made it harder to buyers to secure loans, and hit transaction numbers.
