A dip in inflation to 3.9% in November has lenders prepping for a flurry of interest rate reductions on mortgages, with one already offering a sub-4% deal.
Generation Homes became the first lender to offer mortgage rates below that mark since Liz Truss’s disastrous stint as prime minister, through the introduction of a 3.94% five-year fix on Thursday.
Though the offer does rely on prospective buyers paying a 40% deposit on their house, the cut is expected to drive a flurry of similar moves by other banks as confidence builds that the Bank of England will not need to lift the base rate above 5.25%.
“The first 25 basis point cut is now fully priced in for the Bank’s May meeting, with a decent chance of a start to cuts in March,” Matthew Ryan, of financial services firm Ebur, said.
Barclays PLC (LSE:BARC) has already announced mortgage rate cuts by as much as 0.43% following Wednesday's inflation reading, for instance.
Rates on two-year fixed mortgages still have a way to go, having only recently dipped below the 5% mark.
Indeed, Nationwide Building Society’s 4.82% deal and HSBC Holdings PLC (LSE:HSBA) subsidiary First Direct’s 4.94% were highlighted by MoneyFacts as some of the best deals around.
“We think lenders will have some serious targets to achieve so they will be putting the foot firmly on the pedal for increasing lending,” EHF Mortgages director Justin Moy said.