Host of Major Lenders Make Cuts To Mortgage Rates

Over the past few weeks, many major lenders such as Barclays, HSBC and Halifax have cut their mortgage rates.

This follows speculation that the Bank of England might reduce its base rate from the current 5.25% at its next Monetary Policy Committee (MPC) meeting on 1 August.

Barclays and Natwest were the first companies to cut their rates, reducing the rate on their fixed-rate deals with HSBC following suit soon after.

Despite the cuts, rates are still high with the average rate on a two-year fixed mortgage standing at 5.96% according to Moneyfacts. The average five-year deal is not much lower at 5.53%.

While many borrowers will welcome the cuts, the wider context is that monthly repayments are still high. With 1.6 million borrowers seeing their fixed-rate deals expire this year, more borrowers will move on to deals with higher rates.

Interest rates on a fixed-rate mortgage don’t change until the deal expires, when borrowers either remortgage onto a new deal or do nothing and end up on their lender’s standard variable rate which is often higher than most other deals.

All of this comes amid the backdrop of a cost of living crisis where household bills have increased, stretching budgets even further.

Borrowers will be grateful there’s downward movement regarding mortgage rates, especially as the Bank of England indicated a majority could vote for a reduction in interest rates at their last meeting.

There’s optimism a cut in interest rates in August will boost buyer activity and encourage more people to move into the property market.

It’s likely lenders have begun to cut rates now in response to this and to remain competitive with borrowers. They’re all fighting over a pool of borrowers and need to remain competitive, especially as many struggle with tight household budgets following rising living and borrowing costs.

What does this mean for me?

In simple terms, these cuts mean you’re likely to get a lower rate from your lender than you otherwise would have. It’s important to clarify this will depend on your circumstances and the lender you choose.

But it’s a positive sign for borrowers that lenders are cutting their rates, as it will encourage many people wary of jumping into the property market, particularly first-time buyers, to do so.

That said, mortgage rates are still high based on what we’ve seen over the last 10 years. So, if you’re considering taking out a mortgage, you need to consider whether it’s better to take one out now or wait and see if the Bank of England base rate falls at some point this year.

If it does, lenders will likely follow suit and reduce their rates further.

Are interest rates likely to fall this year?

Following the last meeting of the Bank of England’s MPC on 20 June, the minutes from the meeting suggested that a cut in the base rate is possible at the next meeting in August.

The minutes from the meeting stated, “on that basis, the committee will keep under review for how long [the] bank rate should be maintained at its current level…”

There’s no guarantee interest rates will be cut at the next meeting but the language suggests the Bank is open to the possibility.

While the vote to maintain the base rate at 5.25% was 7 to 2, three members who voted to hold the interest rates at the last meeting stated it was a “finely balanced decision.”

A reduction in interest rates will likely be welcomed by most borrowers but the cut is unlikely to be sharp. Most experts expect the base rate to level out at 3.25% over the next five years.

It should be noted that mortgage rates will likely be around 4 to 5% if this is the case. While not a huge reduction, it will be a welcome change for most borrowers.