Britain’s biggest banks have launched a new war over mortgage prices.
Barclays and HSBC cut interest rates for the second time in two weeks.
It could come as a relief to borrowers looking for a better deal, but given the higher interest rates, many people looking to refinance their mortgage will still find that the rates are significantly higher than the rates they were paying before.
According to UK Finance, around 1.6 million mortgages will be taken out this year without a fixed interest rate.
From Friday, Barclays will cut its two- and five-year fixed mortgage deals by up to 0.27%.
With a fixed-rate mortgage, you agree on an interest rate with the lender. You pay this rate during the term of the mortgage agreement.
HSBC is expected to announce full details of the rate cuts the same day.
Both banks already lowered their interest rates last week.
But other major lenders have also joined the party.
Halifax cut interest rates by 0.19 percentage points on Wednesday, following an earlier cut of 0.23% this week.
Santander followed suit with cuts of up to 0.16% today.
Yorkshire Building Society also announced that it has today cut mortgage rates by up to 0.20 percentage points “with immediate effect”.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “There has only been a marginal decline in the swap market since the general election. However, there has been a drop in activity as potential buyers wait in the hope of further government stimulus, such as higher transfer tax thresholds or more options for first-time home buyers.
Swap rates, which form the basis for fixed-rate mortgages, have fluctuated in recent months, forcing lenders to adjust their rates.
Lenders also expect the Bank of England to cut interest rates this summer, so they have already started cutting rates in anticipation of that.
Major banks and lenders use the BoE’s base rate to set their own interest rates on mortgages, loans and savings accounts.
When interest rates fall, interest rates on mortgages, loans and savings accounts generally also fall.
According to Nicholas, falling swap rates and reduced demand mean lenders are now trying to make up for lost time.
He added: “Lenders have held interest rates longer than they would have liked and are now repricing interest rates now that the election is over.”
“Despite the lack of a reduction in bank interest rates, there is room for reductions.
“We can expect revaluations for about two weeks, followed by a pause as lenders adjust their margins to appropriate levels.”
Mortgage lenders also typically cut interest rates in anticipation of a fall in the base rate.
Markets expect the Bank of England (BoE) to cut the base rate in August this year, after policymakers kept it at 5.25% last month.
However, mortgage rates remain relatively high for millions of borrowers, following successive base rate hikes by the BoE.
According to financial information website Moneyfacts, the average two-year fixed rate mortgage rate on the market is 5.93%.
This is down from Wednesday’s average rate of 5.94%.
The average five-year fixed mortgage rate for homes is 5.51%. This is unchanged compared to the previous business day.
Do you need to fix it?
HERE we explain the advantages and disadvantages of a fixed-term mortgage.
Advantages
- Beating potential rate hikes – You will not experience the consequences if the Bank of England raises the base rate.
- A credit check is performed only once during the term – This means that if your score drops because you took out a credit or store card after you closed the deal, it will not affect your mortgage.
- Protection against changes in the lending criteria – If mortgage affordability criteria are tightened, you may not be able to refinance at a competitive rate. A fixed term gives you more time to meet the criteria.
- Predictability – You know exactly how high your mortgage payments will be over the term, making it easier to plan.
Cons
- You do not benefit if interest rates fall – You run the risk of missing out on lower rates if the base rate falls during this period.
- Early exit costs – Homeowners risk high penalties if they have to terminate the contract early. These can be as high as 7% of the remaining balance.
- You will be charged if you pay it off early – If your circumstances change and you wish to pay a significant additional amount or repay the full amount early, you will be charged a fee.
- You could be paying too much – Homeowners with more money to pay off tend to pay higher rates. If you take a deal when you don’t have that much more to pay, you could miss out on lower rates and end up paying more than you need to.
How to get the best mortgage deal
Whether you can get the best mortgage depends on what is available at the time, but there are ways to stay ahead of the competition.
Generally speaking, the larger your deposit, the lower the interest you can get.
If you refinance your mortgage and your loan-to-value ratio has changed, you may also benefit from more favourable interest rates than before.
A change in your credit score or an increase in your salary can also give you access to better interest rates.
If you have a fixed rate, you can expect higher interest rates towards the end of the current term, after the BoE raised interest rates from 2022 through last year.
And if your fixed contract is due to expire within the next six months, it’s worth contacting your broker now to lock in an interest rate.
If interest rates fall between now and the end of your contract, you can always request a different interest rate before refinancing your mortgage.
If you terminate a fixed deal prematurely, this usually entails a penalty. So you want to avoid these extra costs.
But depending on the cost and how much you can save by switching versus staying, it may be worth walking away from the deal. Just make sure you compare the costs first.
To find the best deal, you can use a mortgage comparison tool to see what’s available.
You can also go to a mortgage advisor who can compare mortgage types for you. Most advisors offer free advice so you can find the best deal for yourself.
Some agents charge for advice, so ask them first.
It might cost a few hundred pounds, but it could save you thousands on your mortgage.
You also need to consider the costs of the mortgage. Some banks do not charge these costs at all, but you can also add them to the mortgage costs.
But be aware that this means you will pay interest on it and it will cost you more in the long run.
With a mortgage calculator you can calculate how much you can borrow.
Please note that if you decide to transfer your mortgage to another lender, you will need to meet that lender’s affordability checks.
Your credit file may also be checked to see if you have paid off previous debts.
You may also need to provide documents such as utility bills, proof of benefits, the last three months’ pay stubs, passports and bank statements.
You can avoid new affordability checks by transferring your mortgage to a new deal with your current lender, provided you do not want to borrow more or extend your term.