Borrowers grappling with high mortgage rates will be pleased to know that some major lenders have made further cuts, and competing banks are expected to follow suit.
Competition has returned to the UK lending sphere, as many banks and building societies are set to make further reductions to their mortgage rates to get more customers on-board. This has been led by two of the UK’s biggest lenders, HSBC and NatWest, reducing their rates on Monday.
Both banks announced the rate cuts across their residential mortgage products, including first-time buyer, home mover and buy-to-let deals. Notably, tracker products were particularly reduced, in a bid to draw in more borrowers after a quiet summer period.
With UK inflation finally falling earlier in the summer, mortgage rates have been slowly coming down from the peaks seen earlier this year, although they remain significantly higher than they were two years ago. These latest cuts come just over two weeks ahead of the Bank of England’s next interest rate announcement on 21st September.
Benefitting new buyers and homeowners
Other lenders to have cut their mortgage rates recently include Nationwide, Accord Mortgages, Paragon Bank and Leeds Building Society. With more banks expected to follow suit in the coming days, this could serve to attract a fresh wave of buyers to the market.
This view is supported by Lewis Shaw, owner of Shaw Financial Services, who said of the latest rate reductions from major lenders: “There’s every chance we could see the remaining big four [Lloyds Banking Group, Barclays, Nationwide and Santander] come to the party this week, too.
“It would appear that lenders are struggling to get new business, and the rate tap is the only tool they can turn to.”
Many lenders are also broadening their product ranges to draw in more customers, such as HSBC introducing its first 40-year mortgage last week. The extra-long mortgage term is aimed at those who would like more security, or cannot afford the monthly payments of traditional shorter mortgages.
Described as ‘marathon mortgages’, these long-term products are open to both homeowners and buy-to-let landlords, and such options have become increasingly popular among those trying to navigate rising interest rates.
Andrew Matson, head of Mortgages at HSBC UK, said: “We know that home ownership is a key life ambition for many people, but affordability can be an issue. We are delighted to introduce our first ever 40-year mortgage term to our customers.
“This move underscores our commitment to supporting aspiring homeowners in their journey onto the housing ladder.”
What will happen next to mortgage rates?
Swap rates and inflation levels are just some of the factors that the Bank of England’s Monetary Policy Committee will use to determine whether to raise, lower or maintain interest rates later this month. Some believe that the latest moves by lenders indicate a greater confidence that the base rate will not increase.
Either way, as more lenders jump on board to offer cheaper mortgage rates, those looking to buy or remortgage now or in the near future are likely to be advised to secure a fixed rate now.
Moneyfacts figures show that, as of 4th September, the average five-year fixed rate is 6.19%, while the average two-year fixed rate is 6.7%. This is down from the end of July’s figures, which showed rates of 6.37% and 6.86% respectively.
Could we see average mortgage rates fall back to below 5% or even 4% as the year goes on? According to Nicholas Mendes of John Charcol, it is possible.
“Five-year fixed rates will continue to fall as future market expectations improve with each downward inflationary announcement,” he said. “We have seen five-year fixed rates steadily decrease over the last few weeks, with this pattern to continue to the end of the year.
“Anything starting with 4 per cent will be good news, with hope for low 4 per cent by the end of the year.”
While Mendes doesn’t think two-year fixed rates will go quite so low, he is optimistic about rate cuts: “Expect the majority of two-year fixed rate to begin with a 5 per cent. Hopefully, we will see the 5 per cent barrier being broken, but at this point I can’t see that happening.”
