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UK mortgage rates set to fall after Bank of England knife-edge vote

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UK mortgage rates are expected to fall further after the Bank of England held interest rates at 5.25 per cent after almost two years of rising borrowing costs. 

Mortgage prices have been declining since the middle of summer as markets reacted to better than expected inflation data and looked ahead to the central bank’s decision. 

“Fixed rates should keep on getting cheaper. The very best rates have been slowly nudging down but positive inflation figures and the hold to base rate should add momentum to that trend,” said David Hollingworth, associate director at broker L&C Mortgages. 

“We could see further cuts feed through to the market quickly, which will be a boost for borrowers, giving them confidence that we are now at or very close to the peak.” 

Several lenders announced cuts this week, including TSB, which on Thursday said it would cut rates to as low as 5.09 per cent, and NatWest, which set out a range of cuts on a number of its mortgages on Wednesday. 

Virgin Money also cut rates on several products, bringing its five-year fixed rates as low as 4.97 per cent, following Yorkshire Building Society, which lowered its five-year fixed rate to 4.99 per cent.

“There weren’t many rates below 5 per cent last week, and there are a few more now,” said Aaron Strutt, director at broker Trinity Financial. 

The cuts will be welcomed by the property sector, prospective homebuyers and mortgage holders coming to the end of fixed-rate deals. On Thursday, the average cost of a two-year mortgage was 6.58 per cent, compared with the 15-year high of 6.85 per cent at the start of August, according to data provider Moneyfacts. 

Lenders have generally offered the best deals to borrowers buying a home, as they compete for customers in a slower housing market. Customers looking to remortgage are not being offered the sweetest deals. 

About 800,000 borrowers will reach the end of fixed-rate deals in the second half of this year, according to figures from trade body UK Finance. Another 1.6mn fixed deals end in 2024, adding to worries about household finances and the cost of living. 

Nick Leeming, chair of estate agents Jackson-Stops, said after the BoE’s knife-edge vote that “a momentous sigh of relief can be heard up and down the UK, especially those . . . mortgage borrowers whose fixed-rate deals are coming to an end”.

The sharp increase in borrowing costs since late 2021 have led to falling house prices and record increases in residential rents. Private rents rose 5.5 per cent year on year in August, according to official data published on Thursday, the largest annual increase since records began seven years ago.

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