How low can mortgage rates go?

Despite the base rate being at a record low and lenders engaged in fierce competition to offer the best mortgage deals, experts believe that rates are set to fall once again this summer.

The Bank of England has recently hinted that it will cut the base rate following the outcome of the EU referendum, pushing rates down to new record lows.

Leading lenders cut the cost of the best fixed-rate mortgage deals

This Is Money reports that “lenders have been enmeshed in a price cutting war for the past month” resulting in low-cost deals for borrowers. HSBC are currently offering a two-year fixed rate at just 0.99% while other lenders are offering five-year fixes at 1.99%.

Last week, Leeds Building Society cut its ten-year fixed rate to 2.84% at 65% loan-to-value with a £1,499 fee. Rivals Coventry Building Society, launched some new 50% loan-to-value rates last week, including a five-year fix at 2.09% with a £999 fee.

Data from Moneyfacts shows the average two-year fixed rate is now at 2.55%, down from 2.56% last week. A month ago it was 2.58% and a year ago, 2.76%.

Gilt rates become negative for the first time ever

The Bank of England has hinted that the base rate could be cut from its record low of 0.5%, meaning that mortgage deals are set to get even cheaper. The news comes as gilt rates - the rate at which the government borrows and which influences nearly all other money market rates - entered negative territory for the first time ever.

Laith Khalaf, a senior analyst at investment company Hargreaves Lansdown, said: "It’s only one gilt affected so far, maturing in March 2018 and now yielding -0.04%, but this is a landmark for the UK interest rate environment. The UK is now officially through the looking glass as the Brexit vote has pushed gilt yields below zero for the first time. Remarkably, markets are now expecting interest rates to lurch downwards, despite already being at record lows."

The Bank of England's Monetary Policy Committee (MPC) could reduce the base rate as early as July while Mr Khalaf says that there is a “one in four chance” that the base rate could become negative over the next year.

While fixed rates are continuing to fall, if you're prepared to take a risk then a tracker deal could see your mortgage payments fall if the Bank were to cut interest rates further.

Mortgage expert Mark Harris says: "Falling mortgage rates are great news for borrowers and there is growing expectation of a base rate cut so those who can afford to gamble may be tempted by a cheap tracker-rate mortgage instead."

Currently, Santander has a 1.39% two year tracker deal, available to 60% loan-to-value and with a £995 fee.