Homeowners could soon see even lower mortgage bills, with a December rate cut now viewed as almost certain.
Many borrowers are already around £300 a year better off as lenders begin trimming rates in anticipation of the Bank of England’s next move.
Analysts say the Bank of England is likely to lower rates from the current 4 per cent when policymakers meet on December 18, after new figures showed the economy grew by just 0.1 per cent in the third quarter. The weak data has sharply increased expectations of a December rate cut.
Thomas Pugh, partner and chief economist at RSM UK, said: "If we didn't think a rate cut in December was already nailed on, this morning's data means it would almost certainly be now."
Suren Thiru, economics director at the Institute of Chartered Accountants, said the figures were disappointing enough to push most rate-setters towards further monetary easing, while Raj Badiani at S&P Global Market Intelligence agreed the numbers had "ramped up" the chances of a cut.
Homeowners are already feeling the impact. The average mortgage rate has fallen to 4.43 per cent, down 21 basis points in a month, saving typical borrowers around £300 a year compared with this time last year.
Mark Harris, chief executive of SPF Private Clients, said swap rates dipped immediately after the GDP release, putting further downward pressure on fixed-rate deals.
He expects lenders to continue reducing prices as they chase year-end targets in a sluggish housing market. Some fixed-rate products below 4 per cent are now available to buyers with larger deposits or significant equity, and competition is likely to intensify in the coming weeks.
Rob Clifford from Stonebridge noted that fixed-rate products continue to attract most borrowers, though variable options have experienced modest growth recently. He explained that fixed arrangements provide payment certainty during uncertain times, whilst an increasing minority accept variable rate risks, anticipating further reductions.
Mortgage boost as December rate cut a near 'certainty'
| GETTYThe Bank of England's measured stance on rate adjustments has deterred many from choosing variable products, according to Mr Clifford. He observed that borrowers seeking flexibility without long-term commitments have gravitated towards shorter fixed periods instead.
These products represent a compromise, offering protection from immediate fluctuations whilst maintaining options for future refinancing.
Mr Clifford suggested that if the Bank signals more aggressive cuts than markets anticipate, variable rate mortgages might experience renewed interest from borrowers.
Mr Clifford highlighted that the division between capital repayment and interest-only mortgages has stayed relatively unchanged over the past twelve months, with interest-only options representing just below 20 per cent of all home loans.
These arrangements typically suit individuals with substantial earnings, significant bonus payments or established repayment strategies, including plans to sell additional properties.
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Borrowers seeking flexibility without long-term commitments have gravitated towards shorter fixed periods instead
| GETTYThe Financial Conduct Authority's ongoing review of mortgage regulations could alter this landscape significantly. Clifford explained that if the regulator permits property sales as an acceptable repayment method, substantially more borrowers would become eligible for interest-only products.
Such regulatory changes could prove revolutionary for the popularity of these mortgages, he suggested. The potential shift would open interest-only options to a broader range of homeowners who currently cannot meet existing criteria.
Refinancing dominated October's mortgage market, comprising almost two-thirds of all activity as approximately 1.6 million fixed-rate agreements reach maturity this year, Mr Clifford explained.
Analysts say the Bank of England is likely to lower rates from the current 4 per cent when policymakers meet on December 18
| PADespite this imbalance, purchase lending has surpassed 2024 levels in nearly every month, with the high volume of maturing loans simply skewing proportions towards remortgaging.
Mortgage applications increased by seven per cent compared to October 2024, demonstrating continued market momentum despite economic uncertainties surrounding the Autumn Budget. The average loan amount decreased marginally to £195,068.
Mr Clifford anticipates that two or three additional rate reductions by the Monetary Policy Committee would help rebalance the market.
He suggested lower borrowing costs typically enhance confidence amongst both existing homeowners looking to move and first-time purchasers, potentially stimulating increased buying activity throughout the property market.