Major bank launches sub 4% interest mortgages in start of potential ‘price war’ | Personal Finance | Finance

Santander UK is set to become the first high-street bank to offer a mortgage with an interest rate under 4% this year, unveiling four new deals.

From Thursday, February 13, the bank will introduce two- and five-year fixed mortgage options at 3.99% for both residential purchase and remortgage, available for customers with a 60% Loan to Value (LTV). Homebuyers will be offered a £1,999 fee, while remortgagers will face a £1,749 fee.

The LTV ratio represents the percentage of a property’s value being borrowed compared to the deposit paid by the buyer. For example, with a 60% LTV, customers would provide a 40% deposit.

Additionally, Santander is cutting rates by up to 0.40% on more than 80 other mortgage products. These reductions will apply to a wide range of options, including residential purchases, remortgages, new build purchases, and buy-to-let (BTL) purchases and remortgages.

The bank is also expanding its BTL offerings with new 65% LTV products, providing more choices for customers between 60% and 75% LTV.

David Morris, head of homes at Santander, said: “We’re delighted to launch a range of new products, along with rate cuts on our existing range, that will make a difference to customers across every stage of the home-buying journey.”

The move follows the Bank of England’s decision to cut the central interest rate from 4.75% to 4.5% last week. Brokers suggest this could mark the start of a “full-scale mortgage price war.”

Iain Swatton, director at Exemplar Financial Services said: “Santander has fired the starting gun, becoming the first major lender in 2025 to go sub-4% on two- and five-year fixed mortgages.

“With rates of 3.99% at 60% LTV, this move could be the catalyst the market needs after a hesitant start to the year. Lenders have been cautious, with rates fluctuating both up and down—but this bold move by Santander might be the push needed to get things moving.”

He added: “Alongside their 0.40% reductions across a large number of products and new buy-to-let options, we could be looking at the start of a full-scale mortgage price war. With competition heating up, other lenders will no doubt follow suit—great news for borrowers looking for a better deal.”

David Hollingworth, associate director at L&C Mortgages said: “The improvement in the rate of inflation last month and recent rate cut seems to have reversed market anxiety about whether rates may have to stay higher for longer. That has been feeding through to mortgage rates in the last week and underlines gradual improvement in the market, as fixed rates begin to ease back.”

He warned borrowers to be cautious of Santander’s fees. He said: “These new rates are certainly a positive and the headline rate is bound to catch the eye. However, they come with a bigger fee of £1999 or £1749 for purchase and remortgage respectively.

“Borrowers will, therefore, need to keep their wits about them and do their sums to make sure that they are getting the best overall value.”

He added: “It will be those with large loans that will have the most to gain from the low rate, whereas those with smaller mortgages are likely to be better served by a lower or no fee and slightly higher interest rate.

“Lenders will generally have a range of rate/fee combinations on offer, so borrowers can tailor the deal choice to their own circumstances. Nonetheless, this marks a significant shift in rates, as Santander looks to force the pace.”

Nicholas Mendes, from independent mortgage advisor John Charcol, suggested current swap rates mean there could be “limited scope” for many more brokers to follow suit.

Mortgage market swap rates reflect the price lenders pay financial institutions to secure fixed-rate funds. These funds are used to offset the short-term risks associated with fixed-rate mortgages.

They are generally based on Government bonds called Gilt yields, which reflect what the market anticipates will happen to interest rates down the line.

Mr Mendes said: “Currently, two- to five-year swap rates are below 4%, representing a notable decline compared to this time last month. However, with two-year swaps priced only marginally below this level, there is limited scope for other lenders to comfortably follow suit.

“As such, I do not expect many competitors to replicate this move. Without wider market support, this deal is unlikely to remain available for long – so it’s worth acting swiftly when opportunities like this arise.”