Mortgage rates are set to fall below 4% as early as next week. This change is linked to the decrease in swap rates, a key indicator of mortgage rates. Swap rates dropped to 3.99% this Tuesday and went even lower to 3.94% by Thursday.

For the first time since mid-June, the average rate for two-year fixed mortgages dropped below 6%, a significant milestone according to financial experts at Moneyfacts.

Major Banks Cutting Rates

In response to these changes, big banks like Nationwide, Santander, and Halifax have reduced their fixed mortgage rates. Nationwide made a notable cut of up to 0.40 percentage points, offering rates starting from 4.19%. Santander and Halifax also followed suit, with reductions of up to 0.32 and 0.25 percentage points, respectively.

Other Banks Joining the Trend

First Direct earlier this week reduced its fixed rates by up to 0.45 percentage points. Across the top six lenders, the average five-year fix rate was at 4.84% as of December 5, according to Uswitch.

Global Influence and Predictions

Andrew Goodwin from Oxford Economics attributes the drop in swap rates to global factors, with markets showing confidence that inflation is being controlled worldwide. This anticipation suggests that central banks, including the Bank of England, might cut interest rates in 2024.

Despite the Bank of England’s firm stance on high rates, economists expect rate cuts next year, earlier than previously thought.

What’s Next in the Mortgage Market?

Some brokers predict that five-year fixed deals priced at 3.99% could appear as soon as next week. Others believe it might take a month or more to reach this rate.

Gary Bush, a broker from Mortgage Shop, expects rates below 4% to spark the next phase of the “mortgage lender fixed rate war”. This competition among lenders is good news for buyers and homeowners looking to save.

Banks’ Strategies to Attract Customers

Aaron Strutt from Trinity Financial mentioned that banks are offering ‘loss leading’ products with tight profit margins to attract more customers. This strategy means property purchase rates might become cheaper, leading to a more intense price war starting in January.