This week, more than a dozen UK building societies and banks are expected to lower rates on fixed-rate mortgages. The move reflects market expectations of a falling inflation rate.
Brokers do not expect dramatic price reductions, as the Bank of England is expected to increase interest rates in the second half of the year. Tuesday’s figures showed that wages had grown at a record level.
Nicholas Mendes of broker John Charcol warned that consumers shouldn’t expect a rate cut every week. I expect that price reductions will slow down for a while before more lenders start to do more.
Barclays, Nottingham Building Society, and Yorkshire Building Society cut rates on Tuesday by as much 0.61 percentage points for residential fixed-rate mortgages, after Santander announced that it would reduce offers by up 0.29 percentage points.
After inflation dropped to a 15 month low in June, this is the fourth week in a row that mortgage rates have been reduced by lenders.
Mortgage providers base the prices they charge on the swaps markets, which reflect expectations of future interest rates. These are expected to increase next month.
Mendes stated that swaps were rising due to the record wage growth from April through June. This reinforced the central bank’s concerns about the inflationary pressures.
The swaps market has now priced in the peak interest rate of 6.5% in the UK by the end the year. This was fully priced in at 6.55% in early July.
Reuters polled economists who predicted that the data to be released on Wednesday would show a rapid slowdown in consumer price increases, down from 7.9 percent in June to 6,8 percent in July .
NatWest’s Accord mortgages, along with Yorkshire Building Society, will lower their rates by up to 0.45 percentage points, on Wednesday.
Platform, a mortgage lender that is part of Co-operative Bank said it will also reduce the fixed-rate cost by up to 0.29 percentage points as of Thursday.
Aaron Strutt is a director of Trinity Financial. He said, “We’ve been waiting for a long time for lenders to lower their rates. And the improvements are becoming more frequent.”
The slowdown of the mortgage market forced lenders to lower their prices in order to compete with each other, while borrowers had to reduce spending due to the difficult economic climate. Last month, the chief financial officers at both Lloyds Bank and NatWest raised this issue during their quarterly results calls.
Brokers warned against lenders undercutting one another. Kylie-Ann Gatecliffe is the director of broker KAG Financial. She warned that if lenders undercut each other, they could create a rush of buyers and drive up house prices. “They must tread very carefully.”
Despite the recent decrease in mortgage costs for borrowers, rates are still higher than they were a year ago.
Moneyfacts reports that the average cost of a fixed-rate mortgage for two years is 6.79 percent, a slight decrease from the 15-year high reached in early August.
Strutt said that “most homeowners and buyers must have rates at an affordable level to regain financial confidence.”