Lenders are reducing mortgage rates with several of them now offering cheaper deals and rates below 5 per cent

A fresh wave of mortgage rate reductions has led to a number of deals sitting below 5 per cent hitting the market.

The latest cut is from Nationwide, which announced it is reducing its three-year and five year fixed deals, making them the cheapest available.

From Wednesday, it will lower existing rates by 0.45 per cent. A three-year fix will be reduced to 4.99 per cent and a five-year fix will fall to 4.74 per cent for new purchases. For those re-mortgaging, the three-year fix will become 5.29 per cent and five-year fix will sit at 4.89 per cent.

The next cheapest rate is with HSBC on its five-year fixed deal at a rate of 4.74 per cent with a £1,499 fee.

Nationwide is the latest lender to cut rates as they start to fall back across the board, following a halt to interest rate hikes.

As a result, swap rates, the rates at which that banks lend money to each other, have remained settled. This has allowed lenders to cut rates and bring competition back to the market.

Experts believe rates could now reach 4.5 per cent by the end of the year.

Nick Mendes of brokers John Charcol said: “I think there is margin for lenders to come down to 4.5 per cent on five-year fixed rates by the end of October. This latest move by Nationwide will strengthen their position but only for a matter of days, as I suspect HSBC will want to regain their hold on the market.”

This week, First Direct has dropped rates by 0.17 per cent, meaning its five-year fix is now 4.87 per cent, while the Co-operative Bank also reduced its two, three and five-year fixed rate products by up to 0.5 per cent.

TSB has also cut rates by up to 0.2 per cent on its three-year fixed rates and 0.1 per cent on its two-year deals.

Aaron Strutt of Trinity Financial said: “Lenders are still lowering their rates as the cost of funding mortgages continues to fluctuate.

“Many of the banks and building societies are a long way off hitting their lending targets and given the reduction in the number of property purchases going through, they know the only real way of getting more mortgages agreed is to lower rates.

“It is good to see more deals getting cheaper.”

The reductions to rates are also now becoming more substantial compared to the previously minimal cuts.

Mendes said: “Each week, we are seeing lenders continuing to reprice their fixed-rate products which show no signs of slowing down albeit for the next few weeks.

“We’re starting to see the repricing typically around 0.25 to 0.5 per cent, rather than the nominal 0.1 per cent reductions.”

It comes as Skipton Building Society announced it has launched a new mortgage offering the lowest rate seen on the home loan market for over a year.

It is offering a two-year fixed-rate mortgage with a rate of just 3.35 per cent, available to customers who are remortgaging with the lender and who have 40 per cent equity.

The downside is the fee, which is 5 per cent of the loan – far higher than the average fee of £999.

Mendes added: “We have seen lenders like Skipton show innovative ways of creating a headline rate but higher arrangement fees to compensate. They say if it looks too good to be true then it certainly will be.”