Real estate mortgage home house
The newly launched mortgage, priced at 4.99%, is targeted at new customers in the process of moving homes. Brandon Bell/GETTY IMAGES NORTH AMERICA via AFP

Prominent mortgage lender Nationwide has introduced a groundbreaking two-year fixed-rate mortgage with an interest rate below five per cent, which is a significant development for homebuyers and the property market.

According to mortgage brokers, this offer, priced at 4.99 per cent, is a watershed moment that will provide a much-needed boost to the housing sector.

Furthermore, it signals a positive direction for borrowers. This new offering, available starting Thursday, represents a 0.25 percentage point reduction from the previous rate and is primarily targeted at new customers looking to purchase a home.

However, a key requirement is that borrowers must have a deposit or equity stake of at least 40 per cent. Nationwide has also rolled out two-year fixed-rate options starting at 4.99 per cent for existing customers who wish to switch to a new mortgage deal.

The decision by the Bank of England to maintain interest rates at 5.25 per cent for a second consecutive meeting has contributed to increased stability in the mortgage and housing markets. This decision has led many economists to predict that interest rates will remain at or around this level for the foreseeable future.

Nicholas Mendes, the head of marketing at John Charcol, a mortgage broker, commented on the significance of Nationwide's new offer. He stated: "It's been a while since we've last seen a two-year fixed-rate mortgage with an interest rate that starts with '4'."

Mendes also noted that a recent drop in gilt yields has affected swap rates, a critical factor in determining fixed-rate mortgage pricing. In response, various high street lenders have quickly adjusted their rates, resulting in a flurry of rate repricing.

It is worth noting that the two-year fixed-rate mortgages with rates below 5 per cent have not been available since around June.

According to data provided by Moneyfacts, the average new two-year mortgage rate decreased to 6.22 per cent as of Thursday, down from 6.85 per cent at the beginning of August. Similarly, the average new five-year fixed-rate mortgage stood at 5.81 per cent on Thursday, down from 6.37 per cent on August 1st.

Nationwide Building Society revealed that its new home loan rates have been reduced eight times in the last three months. This consistent decrease in mortgage rates has contributed to the housing market's improved outlook.

Halifax and Nationwide conducted leading surveys this month, both of which revealed unexpected increases in UK house prices in October. Simultaneously, new mortgage rates have continued to fall as lenders compete fiercely to attract business and meet lending targets.

Chris Sykes, a technical director at Private Finance, a mortgage broker, expressed enthusiasm for the development, stating: "It's great news." He also said that when one lender introduces favourable terms, it often prompts others to follow suit.

Lewis Shaw, at Shaw Financial Services, another mortgage broker, emphasised that the new rates from Nationwide are a watershed moment, which could lead to other lenders offering competitive rates. Shaw anticipated a more competitive market over the next few months, particularly as transaction levels naturally decrease leading up to the holiday season.

Shaw acknowledged that many households about to renew their mortgages in the coming months would still face challenges. However, he suggested that Nationwide's move represents a glimmer of hope in an otherwise challenging situation.

Despite these rate reductions, a significant number of homeowners who secured deals with interest rates around one per cent or two per cent still face substantial payment increases when those deals come to an end.

Approximately 800,000 homeowners have fixed-rate mortgages set to expire in the second half of 2023, with an additional 1.6 million mortgages due to expire in 2024.