Home buyers could benefit from mortgage rate reductions following an expected 0.25 percentage Bank Rate rise later this week.

Brokers said that as long as the Bank of England does not surprise with a larger than expected interest rate rise on Thursday, lenders should soon have the confidence to start competing for a dwindling pool of borrowers.

Nick Mendes, of mortgage broker John Charcol, said: “Subject to a non-eventful 0.25 percentage point announcement, we could see lenders release rates late Thursday afternoon.”

He added: “Santander, TSB, Virgin, NatWest and Metro Bank have some margin to come down to be competitive on two- and five-year fixed rates.”

Markets have priced in a Bank Rate rise to 5.25pc this week and now expect rates will peak at 5.75pc in March next year.

Better than expected inflation data earlier this month has triggered a drop in expectations for future interest rates.

A month ago, City traders had priced in a Bank Rate peak of 6.25pc.

In turn, this has triggered a drop in swap rates, which flow into banks’ mortgage pricing. Two year swap rates have fallen from 6.2pc in the first week of July to 5.6pc.

Several lenders have already announced reductions but many will likely hold back from cutting rates early next week in case the Bank of England makes a larger than expected increase, Mr Mendes said.

“HSBC made a reduction but they were already not competitive and the recent increase still doesn’t put them in the best buys,” he added.

The average two-year fixed-rate was 6.81pc on Friday, down from a peak of 6.86pc on Wednesday, according to Moneyfacts.

Andrew Goodwin, chief UK economist at Oxford Economics, said that the Bank’s messaging on Thursday will be key.

If markets have a dovish take on the Bank of England’s communications and react by lowering expectations for interest rates further, this could flow into cheaper mortgage rates, Mr Goodwin said.

The recent drops in swap rates, which flow into how banks price mortgages, may also not yet have fully passed through, Mr Goodwin added. “This is plausible, as it generally takes a bit of time for lenders to reprice their mortgage deals.”

David Hollingworth, of L&C, said lenders have already priced in a 0.25 percentage point increase in the Bank Rate and if the Bank does not raise interest rates by more than this it should give banks the confidence to make more rate cuts.

Mr Hollingworth said: “It will show that the market is stable for them to start pricing more competitively.”

Alongside HSBC, Barclays and TSB have already made cuts.

“That will undoubtedly get the attention of their peers. Just as the snowball effect took rates up, it can also help bring them back down,” Mr Hollingworth said.