Mortgage rate war: How low will lenders go and what it means for home buyers

Major mortgage lenders are slashing rates, helping to bring down the cost of borrowing for a new or existing home.

Nationwide, Virgin Money, and Halifax are among the big names cutting their costs this week.

It comes after a ceasefire was announced in the Middle East conflict which had helped push up mortgage costs over the past few months.

Many homebuyers may now be wondering if this is the start of a longer trend in falling rates and exactly how low we could see mortgage costs fall.

Why are mortgage rates falling?

Mortgage pricing is in part driven by the Bank of England's base rate which was held at 3.75% in June.

Some forecasts suggest it could now come down to 3.5% this year as fears of higher inflation start to subside.

When the cost of living is high, interest rates usually rise.

But the ceasefire in the Middle East is now expected to help bring inflation back down over the coming months.

This gives the Bank of England more room to keep hold or reduce rates rather than increase.

Lenders also look closely at market borrowing costs, known as swap rates.

When swap rates fall or stabilise, lenders tend to follow suit.

Swap rates have also been coming down, giving lenders confidence to reduce their costs.

Should I wait to fix my mortgage?

For anyone approaching the end of a fixed-rate deal, the good news is that costs are more affordable than they were a couple of months ago.

If you are approaching the end of the deal, you can lock in a new rate around six months before your existing deal finishes.

You then have a rate agreed that you can move to but if rates fall further before you complete, you can leave the first offer and move to a better deal available.

It's important not to fall on to a lenders Standard Variable Rate (SVR) as the costs are usually much higher than a standard fixed rate.

Similarly, if you are hunting for a new home getting a mortgage offer in place now means you can move quickly if you find somewhere you like.

You mortgage offer is usually valid for around six months and you can move to a cheaper deal if it becomes available before you complete.

Is now a good time to take out a tracker mortgage?

Unlike a fixed-rate mortgage, a tracker follows the Bank of England base rate, usually with an added set percentage.

If the base rate falls, your repayments could go down too. But if rates rise, your monthly costs will increase.

No one really knows exactly what will happen to interest rates and things can change quickly, for example, if there is an economic crisis.

At the moment, the Bank of England's base rate stands at 3.75%, and many economists expect rates to remain at this level for the rest of the year.

So there is an element of risk and a fixed rate could be more suitable if you value longer term certainty.

However, trackers often come with now or lower early repayment charges, which means you can move to a fix if a better deal comes along or if you want to keep your situation flexible because you are moving, for example.