Moneyfacts states that in just one day, the average interest rate has dropped from 5.92% to 5.87%. Some major mortgage lenders, such as Halifax and HSBC, have started reducing rates as their own funding costs have decreased.

However, despite expectations of further rate cuts, many existing borrowers may still face the challenge of rising bills. When they switch to new products, they still face a significant increase in interest payments. This is because fixed-rate mortgages typically last for two or five years before becoming eligible for a new rate. If no changes are made, the mortgage will automatically switch to a variable rate, which is often higher, with an average rate exceeding 8%.

Nevertheless, the UK's largest mortgage lender, Halifax, has already started lowering rates on some mortgage products, almost a full percentage point reduction. Other banks are also following suit, and more banks are expected to lower rates.

These changes have already impacted the average rates calculated by Moneyfacts. The average levels for two-year fixed-rate and five-year fixed-rate mortgages have reached their lowest points since June.

This is a positive signal for those looking to purchase a home. According to data from the Bank of England, the number of mortgage approvals for home purchases increased in November, seen as a sign of restored confidence among homebuyers. Additionally, the total number of refinancing applications for switching mortgage lenders has also increased.

However, the affordability crunch in housing cannot be overlooked. According to data from a leading mortgage lender, the number of first-time homebuyers in the UK purchasing homes with mortgages dropped to the lowest level in a decade in 2023. This indicates that housing affordability has reached its limit due to rising mortgage rates and consistently high property prices.

According to data released by Nationwide, a borrower with an income equal to the UK average and making a typical first-time homebuyer purchase with a 20% down payment would bear monthly payments equivalent to 38% of their actual income, significantly higher than the long-term average of 30%. Additionally, deposit requirements are still considered excessively high.

Nevertheless, first-time homebuyers remain a lifeline for the market, eager to purchase their first homes. The decrease in mortgage rates helps them regain confidence to some extent. The ongoing mortgage rate price war is intensifying, and it is expected to have a positive impact on the market.