Nationwide is now offering a mortgage with an interest rate below 4%, signaling increased competition among lenders ahead of the Bank of England's next rate

decision. Starting Wednesday, the UK's largest building society will reduce its five-year fixed mortgages to a rate of 3.99% for new customers moving home with a 40% deposit.

Other lenders are also lowering their rates in anticipation of a potential central bank rate cut in August. Mortgage analyst Kylie-Ann Gatecliffe suggested that this could trigger a "rate war" among major banks.

This is the first time since February that Nationwide has offered rates below 4%. "Although this is only available for purchases right now, we hope that the re-mortgage market will follow," said Sarah Tucker, founder of The Mortgage Mum.

Mortgage borrowing costs remain higher than those seen in the past decade, as lenders base their rates on the central bank's rate, currently at a 16-year high of 5.25%. However, some predict a rate cut at the central bank's next meeting on August 1 due to falling inflation. Central banks typically raise borrowing costs when inflation is high and lower them when inflation is low or to stimulate a sluggish economy.

With around 1.6 million existing borrowers needing to re-mortgage as their current fixed-rate deals expire, many will face much higher repayments on their next home loan, moving from rates below 2% to significantly higher ones.

Ms. Tucker sees Nationwide's new rate as "a hugely positive sign for the mortgage market" during a turbulent time, with people struggling with high living costs and borrowing rates. "This is a fantastic sign of stability and lower interest rates ahead," she said, noting that the recent general election has contributed to a sense of stability in the market.

According to Moneyfacts, the average five-year fixed homeowner mortgage rate is currently 5.40%, down from 5.47% on Monday, while the average two-year fixed homeowner mortgage rate is 5.81%, down from 5.88% on Monday.

"Mortgage rates could fall further, but it is difficult to tell how quickly and by what margins," said Rachel Springall, a finance expert at Moneyfactscompare.co.uk. She added, "Those waiting for the Bank of England to cut the base rate may be crossing their fingers for August, but opinions among economists are now pointing towards September at the earliest due to stubborn service inflation."