The falling cost of borrowing

More than a million homeowners will benefit from a fall in mortgage rates next year after lower-than-expected inflation pushed down the cost of borrowing.

For the first time in months the cost of a five-year fixed-term mortgage has fallen below 4%, with analysts pricing in further falls in the new year.

This followed official figures showing that prices rose by 3.9% in the year to November, the smallest increase since 2021 and easing the cost of living crisis.

Economists now expect the Bank of England to open the door to cutting interest rates as early as February and are pricing in a fall in borrowing costs from the present level of 5.25% to below 4 per cent by the end of next year.

Any mortgage rate cuts will benefit both prospective homebuyers and the 1.6 million homeowners due to come off fixed-rate deals next year. Most had fixed their mortgages at rates below 2.5%, so any reduction will take some of the sting out of their higher repayments.

In anticipation of falling interest rates, one mortgage lender has already released a 3.94% five-year fixed deal, the first time that such rates had been on offer since May. We expect larger lenders to quickly follow suit.

It is already looking a lot more positive than when we peered into 2023. Lenders are now fighting to be top of the best buy tables where once they were fighting to be bottom.

If you need to speak to a mortgage advisor, please contact your nearest branch. We partner with independent brokers who have a whole-of-market view and just one conversation with them is all that's needed to explore how we can help you revisit the best deal for your purchase, or remortgaging on your current home.

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