Mortgage rates are at their lowest in more than three years as a price war between some of the biggest banks and building societies heats up.

Nationwide Building Society cut some of its fixed rates by up to 0.2 percentage points on Thursday. It now has a 3.5 per cent two-year fix for homebuyers, available to those with at least a 40 per cent deposit (60 per cent loan-to-value) and with a £1,499 fee. This is the lowest rate available since September 2022, before the conservative government’s mini-budget sent fixed mortgage rates soaring.

The market averages for fixed rates have also fallen, and are at their lowest since August 2022. The average two-year fix at up to 75 per cent LTV was 3.97 per cent last month, according to the Bank of England, and the average five-year fix was 4 per cent.

HSBC reduced mortgage rates for the second time this month, cutting up to 0.11 percentage points off some deals. Homebuyers can now get a 3.56 per cent two-year fix at 60 per cent LTV, with a £999 fee. The lowest five-year fixed rate for homebuyers at 60 per cent LTV is 3.74 per cent from NatWest, with a £1,495 fee. First Direct, which is part of HSBC, is offering 3.75 per cent,with a £490 fee.

Barclays, Halifax and NatWest have also cut fixed rates over the past fortnight.

The price war has been boosted by an improved economic outlook and falling inflation. Analysts expect another cut to the Bank of England base rate in February, from 3.75 per cent to 3.5 per cent. The rate has fallen six times since August 2024.

Aaron Strutt from the mortgage broker Trinity Financial said: “Nationwide is not messing about, we expected to start this year with lenders cutting their rates and making them more attractive to borrowers and that’s exactly what is happening.

“These price cuts are good news for borrowers, especially with so many looking to get on the property ladder this year or remortgage onto cheaper deals.”

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About 1.8 million homeowners will come to the end of their fixed deals this year, according to the trade association UK Finance, including 392,000 who took out two-year fixes in 2024, when average rates did not go below 4.53 per cent. While banks have concentrated their rate reductions on homebuyers, deals for those who are remortgaging have also become cheaper.

NatWest has a 3.64 per cent two-year fix at 60 per cent LTV, with a £1,495 fee, while Barclays has a 3.76 per cent five-year fix at the same LTV with a £999 fee.

Nick Mendes from the mortgage broker John Charcol said: “For anyone coming off a fixed rate in the next six months, I would not delay. Leave it too late and you risk losing choice and falling onto your lender’s standard variable rate.

“Any further falls from here are likely to be more marginal than dramatic. In most cases, it is better to secure something now, then switch again if pricing improves before completion, than to try to time the bottom.”

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It is possible to lock in a new rate with a lender up to six months in advance. Customers of some lenders, including Halifax, Nationwide and Santander, can move onto a cheaper rate up to four months early, without having to pay an early repayment charge on their current deal as is usually the case when leaving a fixed term early.

Switching early could be a gamble when rates are falling, as it could mean missing out on an even cheaper deal if prices fall further. But you may prefer the security of locking in a rate that is significantly cheaper than what you are currently on. Homebuyers can usually get a mortgage offer that lasts for six months and lenders often extend that limit if more time is needed to complete a purchase.