Homeowners could see mortgage rates tumble to below 3.5% by Christmas – but experts have warned borrowers not to be too hasty in locking in a fixed deal.

It comes as the Bank of England trimmed its base rate by 0.25 percentage points to 4.25% yesterday, with further cuts expected in the coming months.

Economists now believe the base rate could drop to 3.5% by the end of the year, prompting hopes of significantly cheaper home loans.

Mike Staton, of Staton Mortgages, said: “I am confident that we will see fixed rate options lower than that figure.”

Someone with a £200,000 two-year fixed rate deal charging a typical rate of 5.14% is currently paying £1,188 a month. This comes down to £1,001 at a rate of 3.5%.

This is a monthly saving of £187, which equates to a reduction of £2,244 over one year at £4,488 over two.

Someone with a mortgage rate of 4.46% is currently paying £1,107 a month. This would come down to £1,001 a month at a rate of 3.5%.

That would generate a saving of £106 a month, adding up to £1,272 over a year or £2,544 over two years.

Wealth manager Riz Malik, of R3 Wealth, told Newspage: “Fixed-rate mortgages under 3.5% are certainly achievable by the end of the year, especially for those borrowing under 65% of the value of their property, if rate cuts meet market expectations.”

However, borrowers are being urged to tread carefully. Some of the cheapest deals come with hefty fees – such as a Halifax product with a £1,495 charge – and fixing too early could mean missing out on better deals later.

Robert Gardner, chief economist at Nationwide, warned that although rates are easing, “you’ve got a lot going on in the global economy that could change.”

The Bank’s of England’s rate cut this week followed Donald Trump’s surprise “Liberation Day” tariffs, which caused a sharp drop in interest rate swaps – the mechanism used to price fixed-rate mortgages.

Andrew Goodwin, of Oxford Economics, said: “We are expecting mortgage rates to come down to somewhere in the region of 4% by the end of next month.”

Even so, he cautioned that today’s rates are still “a lot dearer than they were before the rate-hiking cycle of 2022.”

Many borrowers coming off old fixed deals taken out before Liz Truss’s infamous “mini-Budget” are still facing sharp increases in repayments.

Rachel Springall, of Moneyfactscompare.co.uk, said: “Two-year fixed rates were at their lowest point since September 2022, which was a few weeks prior to the notorious fiscal announcement… that saw markets panic and mortgage rates skyrocket.”

Lenders appear to be responding already. Nationwide, Britain’s biggest building society, cut mortgage rates for the second time in two weeks, with reductions of up to 0.3 percentage points. Halifax, TSB and Virgin Money also made similar moves ahead of the Bank’s announcement.

Not everyone is convinced that locking in a long-term deal now is wise.

Rob Peters, of Simple Fast Mortgage, said: “Fixing long-term at the bottom of the rate cycle sounds clever on paper, but real life isn’t that simple… many borrowers would be tying themselves into higher rates than necessary if cuts continue.”

Craig Fish, of Lodestone Mortgages, echoed this caution: “Mortgage rates are falling, and fast. But deciding when to lock into a longer-term fixed deal depends on your appetite for risk.”

Others are urging a more flexible approach. Pete Mugleston, of Online Mortgage Advisor, said: “Right now, a two or three-year fix is probably the better option, given the uncertainty out there.”

Ben Perks, of Orchard Financial Advisers, warned that timing the market remains a gamble. “Lock in too early and miss savings… leave it too late and risk hitting the uphill,” he said.

As the market begins to cool, experts say it’s personal circumstances – not headlines – that should guide decisions.

With HSBC forecasting that the Bank Rate could fall to 3% by August next year, the direction of travel appears clear.