Nationwide is offering a mortgage with an interest rate below 4% as competition between lenders intensifies ahead of the Bank of England’s next rate decision.

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

Other lenders have also been lowering their rates ahead of a hoped-for central bank rate cut in August.

Mortgage analyst Kylie-Ann Gatecliffe said this could be the start of a “rate war” between the big banks.

The last time Nationwide offered rates below 4% was in February.

“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 homeowners have seen in a decade because lenders base their mortgage rates on the central bank’s rate.

This remains at a 16-year high of 5.25%, but some predict it will be cut rates at the central bank’s next meeting on 1 August because inflation is falling.

Central banks tend to increase borrowing costs when inflation is high and decrease them when inflation is low or to stimulate a sluggish economy.

Around 1.6 million existing borrowers will be looking to re-mortgage as their current fixed-rate deals expire, with some moving off a rate of less than 2%, leaving them facing much higher repayments on their next home loan.

However, Ms Tucker says Nationwide’s new rate is “a hugely positive sign for the mortgage market” during a “turbulent time”, as people struggle with high costs of living and high borrowing rates.

“This is a fantastic sign of stability and lower interest rates ahead”, she says, adding that the recent general election “has helped consumers and the market to feel more stable”.

The average five-year fixed homeowner mortgage rate is 5.40%, down from 5.47% on Monday, according to date from Moneyfacts.

The average two-year fixed homeowner mortgage rate is currently 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 base rate may be crossing their fingers for August, but this has split opinions among economists who are now pointing towards September at the earliest due to stubborn service inflation.”