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HSBC fixed mortgage rates drop below 4% - will they fall further?

In a great start to 2024, UK mortgages become more affordable with rates dropping to below 4% for first time buyers and home movers

A photo of Dom Limberg, the author

By Dom Limberg

Published on: 2 January 2024

7 min read

HSBC fixed mortgage rates drop below 4% – will they fall further?

HSBC and Halifax are among the UK banks who have this week announced cuts to fixed rate mortgages, with HSBC starting as low as 3.94% for 5 year fixed rates. It’s been a difficult few years for the UK mortgage market and this is a major breakthrough moment in a long recovery process.

It’s been a struggle for homeowners over the last few years, with steady increases to variable rates. Many homeowners have come off low long term fixed rates to be blindsided by huge increases in pricing that simply aren’t affordable. This combined with the recent pandemic and cost of living crisis has meant thousands of people have been unfairly plunged into debt to make ends meet. It’s a relief to see lenders finally starting to make mortgage rates more affordable and ideally this downward trend in rates is a good indication further positive changes this year.

Here at MPO, we’re hopeful that rates will only continue falling in 2024, making it easier for first time buyers and people wanting to remortgage to get fair rates. This is the first time in over 6 months that rates have been this low, so now could be a good opportunity to assess if a remortgage is your best option to save on your monthly repayments.

Note: Changing your mortgage isn’t a decision that should be taken lightly, and you should always think carefully before agreeing to a new rate.

QUICK SUMMARY – Rates drop below 4%, can you get a better deal for your mortgage?

UK lenders including HSBC have lowered fixed-rate mortgages to as low as 3.94%, offering relief for UK homeowners especially during the current cost of living crisis. We’re happy to see mortgage rates finally becoming more affordable and accessible for UK buyers.

  • A range of UK mortgages lenders are dropping their fixed mortgage rates due to lower inflation and a steady Bank of England base rate (5.25%).
  • Homeowners on variable rates, especially those with rates around 8-9%, could save £2,400 – £3,000 per year by switching to lower fixed-rate deals.
  • Interest rates are expected to continue falling over the rest of 2024 which is great news for the UK mortgage market and particularly first-time buyers.
  • You should think carefully before switching to a new mortgage deal as there can be extra fees and charges include that you may not be aware of. If you’re unsure if remortgaging is right for you, you may want to ask for advice from a qualified mortgage broker.

Will mortgage rates continue to fall during 2024?

While inflation drove interest rates higher and higher in 2023, inflation is slowly coming under control. This led to the Bank of England voting for three consecutive pauses to any further rate rises in the back end of 2023. The current UK base interest rate is now 5.25% and these steady rates have encouraged lenders to cut their rates over the last few months.

As of today, HSBC have dropped their lowest 5-year fixed rate deal to 3.94%* which is great news for first time buyers and anyone looking for an affordable rate. This will be the first time their rates have been lower than 4.5% since last June, and their 10-year fixes are now starting from 3.99%.

We can never say for certain if something will happen that could cause rates to rise again, but currently things are looking good for the mortgage market. A lot of people were put off buying or selling last year due to the turbulent market (myself included), so the drop in rates can only mean good things for UK mortgages moving into 2024.

Some of the UK’s top economists have predicted continuing falls to the UK base rate in 2024, so ideally lenders will continue announcing lower rates throughout the year.

Note: *Available for mortgages where you are only borrowing up to 60% of the property value (60% loan to value or LTV).

Are fixed rate mortgages worth it?

One of the main questions you might have about fixed rate mortgages is if they’re really worth switching to if you already have a deal in place. A lot of people swapped to tracker mortgages last year as fixed rates were still high, but with many fixed rate deals now dropping below 4% you could save significantly by making a switch.

If you are on (or are soon switching to) your lender’s variable rate, you could be paying as much as 8 – 9% interest on your mortgage. The highest variable rate is currently Virgin Money (9.49%) and even the lowest rate of 6.99% from HSBC is still far higher than both the base rate and the new fixed rate deals.

It’s possible for UK homeowners to save anywhere between £2,400 – £3,000 per year by switching from a high variable rate (e.g. 8%) to a lower fixed rate deal (e.g. 4 – 4.5%).

Of course, it’s an entirely personal choice to change your mortgage and I’m not saying to jump ship if you’re happy with your current deal. However, if you’re struggling with repayments, it’s definitely worth reviewing what rates are now on offer. You could potentially save thousands over the course of your mortgage, just by checking what’s available and doing a little digging into which lenders could work better for you.

Can I benefit from the new lower mortgage rate deals?

Last summer, fixed mortgage rates experienced a rapid increase, reaching peak values of 5.96% for two-year deals and 5.28% for five-year deals. However, since then, these rates have gradually decreased and currently stand at 4.6% for two-year fixes and 4.28% for five-year fixes.

These rates are applicable to both first-time buyers and home-movers, though some of the lower rates are still currently exclusive to remortgages. Admittedly, it can feel like a lot of effort to remortgage your home, but when you look at just how much you could save it’s usually worth it.

Note: Whether you are buying for the first time or considering making a switch, it may be useful to talk about your options with a qualified mortgage broker before making any decisions.

How will lower rates affect my current mortgage?

If you’re already on a fixed rate deal this means you’re ‘locked in’ to the rate you currently have and any new rates announced won’t affect yours. The only way to benefit from any new rates your lender announced would be through a ‘product transfer’.

With this your lender can allow you to grab a low rate up to 6 months before your current fixed rate is due to end. This can give you some peace of mind that you have a decent deal in place in case rates go up again, and of course you can always remortgage if a better deal becomes available in the meantime.

Product transfers do tend to involve a lot less admin though and can be a simpler (and often cheaper) process. A remortgage can still be beneficial but will normally require additional paperwork and checks, so the process can take a little longer.

Our top mortgage switching tips that you may find useful are:

  1. Have a proper look at your current mortgage – Make sure you fully understand what you agreed to. It’s possible there could be additional fees such as early repayment charges to pay if you leave your current deal early and it’s best not to be surprised by these.
  2. See what your lender can offer – Before you dive into exploring other rates on the market, find out what deals your current lender has. It’s often easier to switch with the same lender and they may be able to offer a much lower rate than your current deal.
  3. Check rates from other lenders – You can use online comparison sites such as MoneySupermarket or Compare the Market for a quick comparison of rates, though they may not give you the whole picture. It can still be useful though to compare these rates to what you pay each month now, so you can see if you would save enough to make switching worth it.
  4. Talk to a mortgage broker – While doing your own research or using comparison sites can be useful, a qualified broker should have all the answers you are looking for. They’ll be able to assess your current mortgage and which lenders will be able to beat your deal and even if they have extra benefits on offer too.

Is it better to have a 2 or 5-year fixed mortgage?

Honestly, there’s no right and wrong answer to what length of fixed rate mortgage is ‘better’ as it comes down to personal preference. Some mortgage holders like the comfort and stability offered by a longer fixed rate (e.g. 5 or 10 years) and others like the flexibility of being able to switch easily every couple of years.

If you want a fixed rate mortgage, you should choose whichever one feels right for your situation. And of course, you can get advice from the lender or an independent broker who can explain more about how these mortgages work and what to expect.

Should I consider remortgaging while rates are low?

Deciding whether to remortgage while interest rates are low depends on various factors specific to your financial situation and goals. Ultimately, it’s entirely up to you whether this is something that you would like to do. Before deciding to remortgage you should always think about factors like:

  • Is your current mortgage rate is much higher than the newly available rates? –  If not, it may be worth holding off in case rates drop further, though of course you do run the risk of them increasing again first.
  • Just how much money will you save? – Work out exactly how much you would save by switching to a lower rate and then compare this to any fees or costs that may be incurred (e.g. early repayment charges).
  • Do you plan on moving any time soon? – If you’re thinking of moving home, it might not be worth remortgaging yet. However, if you’re planning on staying for many more years you could save significantly over the course of your mortgage.
  • How much will switching cost you? – You should always research all the associated fees that come with remortgaging (a broker will usually explain them for you). Make sure you have enough money to cover these or you may lose out financially, at least in the short term.
  • What is your current credit score? – It’s no secret that better credit equals better rates, so use a site like Equifax or ClearScore to see how you measure up. If you need to make some improvements, it’s better to do this before applying to remortgage.
  • Consider getting professional advice – It’s usually helpful to talk to a mortgage advisor about your financial situation as they can then offer personalised advice about how to approach remortgaging.

It’s always best to think carefully about all the pros and cons before remortgaging your home or switching to a new mortgage rate. If you feel that you need some extra advice, you can speak to a mortgage broker before going any further.

More mortgage guides and news

Here we have more of the latest mortgage news and helpful guides for if you’re thinking of buying a house or remortgaging in 2024.

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