MORTGAGE rates have fallen below 4% for the first time in five months.

Lenders are battling it out to offer households the best mortgage deals in months, even as interest rates have risen.

The Bank of England hiked its base rate for the tenth time in a row to 4% in January in a bid to tackle inflation.

It now expects it to peak at 4.5% before falling to 3.25% over the next three years.

The base rate is used by lenders to price the rates offered to customers on savings and loans including mortgages.

Usually, a rise in the base rate is passed on to consumers, but banks are dropping interest rates instead.

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This is because the Bank of England has lowered its forecasts on how interest rates will peak from 6% to 4.5% since the disastrous mini-Budget which caused mortgage rates to shoot up to a 14-year high.

HSBC has announced that it is offering those remortgaging a five-year fixed deal at 3.99% to 60% LTV with a £999 fee.

It comes only days after Lloyds Bank and Virgin Money slashed their 10-year mortgage to 3.99%.

This is good news for home buyers and mortgage holders looking to refinance.

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The average two and five-year fixed rates fell month-on-month for the third month running, down to 5.42% and 5.14% respectively – down from 5.79% and 5.63% respectively last month.

Keep in mind that the exact mortgage rate you can get depends on your personal financial circumstances.

Rachel Springall, finance expert at MoneyFacts said: "It’s encouraging to see fixed mortgage rates coming down for borrowers looking to secure a new deal.

"A five-year fixed rate mortgage is a great choice for those looking for peace of mind to fix their monthly repayments.

"Due to the unpredictable nature of the mortgage arena, it is imperative that both those looking to purchase a property or who wish to refinance seek independent advice from a broker to navigate the options available to them.”

The news comes as more than 1.4million mortgage holders face new bill hikes of around £250 a month.

The majority of fixed-rate mortgages in the UK (57%) which are coming up for renewal in 2023 were fixed at interest rates below 2%, according to the Office for National Statistics (ONS).

But the Bank of England has been forced to raise interest rates in a bid to tackle inflation.

The base rate is now at its highest level seen since October 2008, when it stood at 4.5%.

Borrowers on fixed-rate mortgages have been cushioned from the immediate impact so far. 

But, they'll get a shock when they come to renew as average fixed rates are more than double what they were two years ago.

This resulted from the previous government's disastrous mini-Budget which caused mortgage rates to shoot up to a 14-year high in September.

The Bank of England expects mortgage rates to fall back to 3.25% in three years' time – bringing a new sigh of relief for mortgage holders and paving way for lenders to cut mortgage deals.

Should I fix now?

If you have a fixed rate, you could see higher rates when you come to the end of the current term.

Around 2.2million borrowers are due to come to the end of a deal that they fixed when the base rate was at a historic low of 0.1%.

But if you're nearing the end of a fixed deal soon, you may be wondering if it's worth looking for another one now.

David Hollingworth of broker L&C Mortgages said: "Although those coming to the end of a fixed rate taken during the low in rates of recent years, will still be faced with higher payments than they have been used to, it’s a far cry from the prospect of rates at 6% or more.

"Those borrowers that understandably decided to sit on their hands when rates went through the roof last October, should now seriously consider if it’s time to take advantage of these significant improvements."

How can I get the best mortgage deal?

Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.

Usually the larger the deposit you have the lower the rate you can get.

If you're remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.

A change to your credit score or a better salary could also help you access better rates.

If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE rise., either when shopping for a new fixed deal or reverting to the standard variable rate (SVR).

But if you're nearing the end of a fixed deal soon it's worth looking now. You can lock in current deals sometimes up to six months before your current deal ends.

Fixed rates have historically been cheaper than SVRs, but that may not be the case now, so its worth comparing the costs, and how long you want to be locked in for.

Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.

But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.

To find the best deal use a mortgage comparison tool to see what's available.

You can also got to a mortgage broker who can compare for you, but you may have to pay for this service.

It could cost a couple of hundred pounds but it might save you thousands on you mortgage overall.

You'll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it on to the cost of the mortgage, but beware that means you'll pay interest on it and so will cost more in the long term.

You can use a mortgage calculator to see how much you could borrow.

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Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.

You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statement.

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