Two-year mortgage rates could drop as low as 0.75pc as big banks wade into a price war in a desperate bid to win more customers, experts have predicted.
Lenders are likely to increase the pressure on competitors after Rishi Sunak rolled back his stamp duty tax break, triggering a drop in demand following months of red hot growth.
Many players have already cut their rates in response, rolling out the cheapest mortgage deals ever offered toincluding a raft of sub-1pc offers. Experts believe more is to come as competition for preferential rates heats up.
Aaron Strutt, product director at Trinity Financial, a broker, said: "More lenders will reduce their prices over the coming weeks. The big boys basically - Santander, Halifax, Barclays.
"It could get down to 0.75pc [for two-year fixes], that wouldn't be a surprise. If rates still keep coming down the five-year ones won't be far off."
Nationwide last week launched the cheapest five-year fixed rate mortgage ever recorded in the UK, at a rate of 0.99pc. The deal is available to borrowers remortgaging or moving home with a deposit of at least 40pc, and comes with a £1,499 fee.
The building society also currently offers the lowest two-year and three-year fixed deals, in a move branded by Moneyfacts, the data company, as having “ramped up the mortgage rate war”.
It is the latest lender to drastically cut its prices in the aftermath of lockdown, a trend which began in April when Hinckley & Rugby Building Society launched the first sub-1pc deal since the arrival of the pandemic.
The increasingly low rates suggest banks and building societies are confident in the UK’s post-crisis recovery and keen to take advantage of high property prices.
Deals are so attractive that borrowers have even been willing to take a hit on early repayment charges to ensure they can lock-in the record rates.
Chris Sykes, of Private Finance, another broker, has witnessed a large increase in inquiries from existing clients looking to remortgage despite early repayment charges often being involved.
He said: “While charges can be sizeable, the sub-1pc rates on offer represent a significant saving over the life of a mortgage product and when compared to rates from a few years ago there could be some decent savings available.
“We suspect we will see an increasing number of remortgage inquiries in the coming weeks, as more and more people take advantage of this incredibly favourable situation for borrowers."
But not everyone would benefit from savings in this situation, he warned, as the cost of early repayment charges could be significant.