As competition intensifies in the market for home loans, four large UK lenders have cut mortgage rates twice in the last three weeks. This is due to better-than-expected inflation data.
Nationwide, second largest mortgage lender, reduced Wednesday prices by as much as 0.55 percentage points on certain fixed products. HSBC slashed costs by up to 0.2 percentage point, while TSB, the tenth largest provider, lowered rates by as much as 0.4 percentage point.
Halifax, a part of Lloyds Banking Group – the UK’s largest mortgage provider – has also cut prices on fixed mortgages as much as 0.71 percent points since Friday.
The four major providers’ reductions will give borrowers more hope that rates are at their peak, even though they still pay near-record prices.
The cost of a fixed-rate mortgage for two years has dropped a few basis point from the 15-year-high it reached in August. However, the rate is still 6.83 percent, up from 3.99 percent a year earlier and higher than the peak reached by the “mini-budget” last October.
These latest mortgage rate drops mark the third consecutive week of falling rates after last month’s data showed UK inflation dropped to a 15-month high in June. This reversed a sharp rise earlier in the year, driven by fears about persistent price pressures.
The Bank of England raised interest rates last week to a record high of 5,25 percent, but mortgage rates continued to drop. This is because providers base their costs on the swaps markets which reflect predictions of future BoE rate levels. After the BoE’s decision, it is expected that borrowing costs will peak in early 2019.
Higher rates mean fewer mortgages, said Aaron Strutt of Trinity Financial, a broker. The people we deal every day with would prefer rates to be lower, so that they can do more business.
Market Harborough Building Society, MPowered Mortgages and other smaller lenders also announced on Tuesday their intention to cut costs.
William Chalmers (CFO of Lloyds) told reporters on a call to discuss results last month that the mortgage markets had been quiet during the first half 2023.
He said that “overall, new business was pretty slow during the first half of this year. Mortgage margins were at extremely low levels.”
Brokers also warned that significant reductions in mortgage rates are unlikely to occur in the near future, as inflation is still high despite June’s promising data and the BoE expects rates to stay higher for longer.
David Hollingworth said that providers will have to “see” what the next year brings. He added: “The bottom-line for borrowers is to expect rates to not return to ultra-low levels, which they have enjoyed in the past 10 to 15 years.”
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