Some of the country’s biggest lenders are slashing mortgage rates ahead of Christmas despite the Bank’s official rate of interest being held at 5.25 per cent.
HSBC, Nationwide, TSB and Virgin Money have all cut rates in the past week, now offering deals as low as 4.29 per cent. It is expected that rates will continue to drop as lenders’ costs decrease on the back of the expectation of the base rate having peaked.
Experts are now hoping a deal below 4 per cent could hit the market soon as financial markets have dropped the rates used to finance home loans on the back of this week’s GDP data. Another factor has been the assumption that the US central bank has finished its rate increasing cycle as it announced a hold this week.
“Mortgages rates are significantly cheaper than they were and the lenders are fighting it out to top the best-buy tables,” said Aaron Strutt of brokers Trinity Financial. “This is something they actively tried to avoid doing not long ago.
“We are now waiting for a lender to launch a sub-4 per cent rate which may well happen quite quickly, possibly over the next month or so.”
The Bank of England’s Monetary Policy Committee voted to hold the official rate of interest at 5.35 per cent with three members voting to increase it by 0.25 points.
The Bank outlined its concerns that rises in wages would continue to make it difficult to reduce inflation to 2 per cent, and that uncertainty over the war in the Middle East posed risks.
Markets are predicting the base rate will stay at this level until the middle of next year.
Currently, the best two-year fixed rate home loan for new buyers is offered by Nationwide. At 4.65 per cent, it is available to home owners with a 40 per cent deposit.
Nationwide is also offering the cheapest five-year fix at 4.29 per cent, also with a 40 per cent deposit. Both come with a £999 fee.
Cumberland Building Society is offering 4.58 per cent for someone with a 25 per cent deposit (£999 fee). Santander is offering a three year deal for 4.74 per cent for people with a 40 per cent deposit.
David Hollingworth of L&C mortgages said: “The rate cuts keep on coming and lenders show no sign of slowing up, so the rate war is on something of a rolling boil at the moment with significant numbers of changes continuing to feed through.”
Nick Mendes of brokers John Charcol added: “Lenders are wasting no time and starting the price war earlier than January which has certainly caught a few by surprise.”
Mortgage rates have fallen as a result of lower swap rates – the rates at which banks lend money to each other – falling, as a result of lower inflation figures.
Inflation has come down from a peak of 11.1 per cent last October to 4.6 per cent this October.
Swap rates are now just under four per cent for five-year fixes. They reflect what the market expects will happen to rates in future, which is why fixed rates can be improving despite the Bank of England today voting to hold the base rate for the third time at 5.25 per cent.
Of the six economists polled by i earlier this week – including three who previously sat on the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates – most said the Bank was unlikely to cut rates until September 2024 at the earliest.
Andrew Sentance, who sat on the MPC between 2006 and 2011, said he thought rates would not decrease until 2025.
Minutes published by the Bank of England today, accompanying the decision to hold the base rate, said it would increase the rate “if there were evidence of more persistent inflationary pressure”.