Mortgage rates fall below 4%: how long should you fix for?

Competition between lenders has seen fixed-rate mortgage deals drop below 4% for the first time since last September's mini-budget.

Some of the UK's biggest banks have cut rates in order to offer market-leading deals for borrowers looking to remortgage, with some five and 10-year deals dipping below 4%. 

This means homeowners have the option to fix their monthly loan costs at a level below the Bank of England base rate, which rose to 4% earlier this month.

Here, we explain whether mortgage rates could be set to drop further, and explain what you need to weigh up when choosing between fixed-term mortgage deals.

New mortgage deals drop below 4%

In the past week, both HSBC and Virgin Money have launched sub-4% fixed term mortgage deals, and it's been rumoured that other lenders may follow suit. 

Virgin Money has launched a 10-year fix for 3.99% available for remortgage at a maximum loan to value (LTV) of 65%, or for purchase with a 75% LTV, and both come with a £995 fee. It's also offering a five-year fixed deal of 3.99% for purchase, with a 75% LTV and a £995 fee.

HSBC has introduced a 3.99% five-year fix for anyone remortgaging at 60% loan to value (LTV), which comes with a £999 fee. 

To see all of the best deals currently on offer, head to our story on the best mortgage rates for home movers and first-time buyers. This is regularly updated as lenders continue to chop and change their offers.

• Find out more: how to find the best mortgage deal  

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Will mortgage rates fall further in the coming months?

As lenders have begun to battle for the 'best rate' hot spot, it has sparked hopes that we could see rates falling to around 3.5% as we head into spring. 

While that's a far cry from the sub-1% lows of December 2021, it is significantly better than the huge rates on offer in the direct aftermath of the mini-budget last autumn. 

The average two-year and five-year fixed rates stood at 6.47% and 6.32% in November 2022, as uncertainty in the market caused many providers to withdraw mortgage deals altogether. Since then, mortgage rates have gradually been falling. The latest price cuts are expected to herald further competition among lenders.

Base rate predictions and the impact on mortgages

Financial forecasters feared we could see the base rate hit 6% in 2023 in an effort to combat sky-high inflation, but those fears have since calmed.

Andrew Bailey, the governor of the Bank of England, suggested last week that inflation may have peaked, and we could soon see it start to fall. 

However, it's not the same story for the base rate, which is expected to rise further come the next review on 23 March. Experts believe this could be one of the final increases this year, though, predicting the rate will not surpass 4.5%.

Mortgage lenders are likely to have taken future base rate rises into account with their current offers, so further hikes aren't anticipated to have a significant knock-on effect on fixed-term rates.

• Find out more: the Bank of England base rate and your mortgage

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How mortgage rates compare with 2021

More than 1.4 million households are facing the prospect of higher bills when they're due to renew their fixed-rate mortgages this year, according to the Office for National Statistics (ONS).

Hordes of homeowners took out two-year fixes in 2021 after snapping up a property before the stamp duty holiday came to an end. Now, as they come to remortgage, they're being met with drastically different figures.

Data from Moneyfacts shows the contrast between average rates for two-year and five-year fixes in 2021 compared to 2023.

How long should I fix for?

While rates are falling right now, the last few months have proved how volatile the market can be, so it's tough to know how long you should lock in your mortgage for. 

The vast majority of fixed-rate mortgages are either two or five-year deals.

If predictions of continued mortgage rate reductions come to fruition, a short-term fix could be appealing, as borrowers could potentially get a better deal in two years' time. But, without a crystal ball, it's difficult to know for sure. 

The graph below shows how average rates on two and five-year fixes hit a peak last autumn, and are now decreasing month on month, using data from Moneyfacts.

As well as being cheaper, five-year fixes provide more stability, as you'll know how much your bills are going to be for a longer period of time. 

However, you'll need to think about whether committing to a deal for that long fits in with your plans and circumstances. Leaving a deal early could result in early repayment charges (more on these below).

• Find out more: fixed-rate mortgages

What about a 10-year fix?

By fixing for 10 years, you're taking fluctuations out of the game. A decade is a long time, and what seems like a safe option now could end up feeling like a millstone in five years.

For example, if you were to fix now at 4% for 10 years, you'd be sitting pretty if average rates crept back up to 5% in a couple of years time when those who opted for two-year fixes have to remortgage again. But if rates fall, you could be stuck with an expensive deal. 

One of the best ways to make this decision is taking advice from an independent mortgage broker.

Be wary of early repayment charges 

Early repayment charges (ERCs) come into play if you want to exit a fixed-term mortgage early, for example if you want to move house, and they can cost you thousands.

Some mortgages are portable, meaning you can take them to another property. But there's no guarantee the mortgage you've got on your current home will be the most suitable one for you next property.

With this in mind, it's a good idea to think about your future plans before locking in a longer-term fix. If you think you might move house soon, it may be a safer option to take a two-year fix and retain flexibility.

• Find out more: how mortgage payments work