The cheapest five-year fixed-rate mortgage has fallen below 4 per cent for the first time since early October as competition between lenders and lower interest rate forecasts bring down the cost of borrowing.

HSBC has launched a five-year fix at 3.99 per cent for those remortgaging, down from 4.29 per cent before. The reduction will save someone with a £200,000 mortgage £420 a year in repayments.

Last week Lloyds and Virgin Money launched a ten-year fix below 4 per cent, as banks have steadily cut the rates on fixed mortgages. The average five-year fix has fallen to 5.14 per cent today, from 6.32 per cent at the start of November, according to the financial data provider Moneyfacts.

Aaron Strutt, from the mortgage broker Trinity Financial, said: “Rates are still high compared to where they were but this is another step in the right direction. A sub-4 per cent fix of any type looked a long way off a few months ago.”

Mortgage rates have gradually been falling over the past few months. They increased rapidly in the aftermath of Liz Truss’s mini-budget in September 2022; by mid-October, the cheapest five-year fix was 5.34 per cent.

Since the former prime minister’s tax cuts were unwound by Jeremy Hunt, the chancellor, the Bank of England is not expected to have to raise interest rates as far.

Although the Bank increased the base rate to a 14-year high of 4 per cent last Thursday, financial markets expect it to soon stop. Andrew Bailey, the Bank’s governor, suggested last week that inflation may have peaked and could be falling.

Borrowers are in for slightly less of a shock when their mortgage deals end

The two-year swap rate, a forecast of average interest rates over the next two years used to determine the price of fixed-rate mortgages, has fallen from nearly 5.5 per cent in mid-October to 3.4 per cent now, according to the mortgage broker SPF Private Clients.

Strutt said: “Banks and building societies are getting used to the Bank of England’s announcements. They know the higher rates go, the tougher it will be for borrowers to get an affordable mortgage.

“They still have huge lending targets to hit and they want people to be able to borrow enough money to purchase the properties they want.”

Lower rates mean borrowers are in for slightly less of a shock when their existing mortgage deals end. But 1.4 million mortgage deals are estimated to end this year, according to the Office for National Statistics, with borrowers still facing a big rise in their repayments.

Charlie Nunn, the chief executive of Lloyds Bank, Britain’s biggest domestic bank, told the Treasury select committee this morning that 10 per cent of the bank’s customers would be paying more for their mortgages this year, adding that 1 per cent of those customers faced spending more than 40 per cent of their income on their mortgage.

Picture credit: GETTY IMAGES