MAJOR lenders are lowering mortgage rates as an incentive for borrowers.
NatWest and Barclays have cut rates by up to 0.31%, while HSBC has announced it will cut rates from tomorrow (June 26).
HSBC said more than 300 deals will be completed across its residential and buy-to-let mortgages, but has yet to say how many.
Barclays lowers interest rates on twenty home mortgages.
This includes a two-year fixed product with a fee of £899 and a 60% loan-to-value increase from 4.98% to 4.67%.
It also reduces a five-year fixed home loan with an £899 fee and a loan-to-value of 60% from 4.41% to 4.23%.
Meanwhile, NatWest cut rates on a number of fixed deals last week and MPowered confirmed yesterday that it was cutting rates on fixed deals by up to 0.15%.
With a fixed-rate mortgage, you agree on an interest rate with the lender and pay the same interest rate for the duration of the deal.
MPowered is cutting rates on remortgages only, while HSBC and NatWest are cutting rates on deals for first-time buyers and those refinancing.
We’ve asked Barclays whether rates will be cut for both and will update this story when we hear back.
Markets expect the Bank of England (BoE) to cut its key interest rate in August this year, after policymakers kept it at 5.25% last week.
Major banks and lenders use the BoE 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 will generally fall as well.
Mortgage lenders also tend to lower interest rates in anticipation of a decline in the base rate.
Ranald Mitchell, director of Charwin Private Clients, said recent rate cuts from lenders could force others to drop their rates.
“HSBC has set in motion a thrilling summer of savings for mortgage holders with these latest rate cuts, following in the footsteps of Barclays,” he said.
Should you fix it?
HERE we take you through the pros and cons of a fixed mortgage agreement.
Plus points
- Beat potential interest rate increases – You will not suffer if the Bank of England increases the base rate.
- A credit check is carried out only once during the term – This means that if your score is lowered because you took out a credit card or store card after closing the deal, it will have no effect on your mortgage.
- Protection against changes in credit criteria – If the criteria for mortgage affordability are tightened, you may not be able to refinance at a competitive rate. With a fixed term, you have more time to meet the criteria.
- Predictability – You know exactly how much 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 a lower interest rate if the base interest rate falls during this period.
- Early exit costs – Homeowners risk heavy fines if they have to terminate the contract prematurely. These can amount to up to 7% of the remaining balance.
- You will be charged a fee for early payment – 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 may be paying too much – Homeowners who have to pay more money generally have to pay higher rates. If you take a deal when you don’t have much left to pay, you could miss out on lower rates and, as a result, you could end up paying more than you need to.
“With other lenders joining this trend, homeowners can finally see the relief they have been looking for.”
Andrew Montlake, executive director at Coreco, added: “Given the recent fall in inflation and the easing of swap rates, these cuts could kick off a ‘Summer Sizzlers’ campaign from lenders.
“They are keen to revive the market that has been weakened by the election, warm weather and football. I expect other lenders will follow suit.”
Swap rates are when two parties exchange interest rates to secure financing over a specified period of time.
Swap rates between lenders and other financial institutions influence the price of fixed-rate mortgage deals, and are also affected by any increase in the BoE base rate.
However, mortgage rates remain relatively high for millions of borrowers after successive base rate hikes by the BoE.
Moneyfacts said the average interest rate on a two-year fixed deal is 5.96%, while the average five-year deal has an interest rate of 5.53%.
However, Dariusz Karpowicz, chief executive at Albion Financial Advice, said the rate cuts by HSBC, Barclays and NatWest were all good things.
“This is a welcome relief for borrowers who are feeling the pressure of higher interest rates.
“As temperatures rise, it’s refreshing to see mortgage rates finally moving in the opposite direction.”
How to get the best deal on your mortgage
Whether you can get the best mortgage depends on what is available at that time. However, there are ways to stay ahead of the competition.
Usually, the larger the deposit, the lower the interest you can get.
If you take out a new mortgage and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change in your credit score or an increase in your salary can also help you access better rates.
If you have a fixed rate, you can expect higher interest rates towards the end of the current term, after the BoE increases interest rates from 2022 through last year.
And if you end a fixed deal in the next one six months it is worth contacting your broker now to lock in a rate.
If they drop between now and the end of your deal, you can always apply for a different rate before taking out a new mortgage.
If you leave a fixed deal early, you’ll typically be charged an exit fee, so you’ll want to avoid these additional fees.
But depending on the cost and how much you can save by switching rather than holding on, it may be worth walking away from the deal. Make sure you compare costs first.
To find the best deal, use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can do comparison shopping for you, with most offering free advice to help you secure the best deal for you.
Some brokers charge money for advice, so ask them first.
It may cost a few hundred dollars, but it could save you thousands of dollars in total on your mortgage.
You will also need to consider the costs of the mortgage, although some have no costs at all, or you can add these to the cost of the mortgage.
But keep in mind that this means you will pay interest on it and it will be more expensive in the long run.
You can use a mortgage calculator to see how much you can borrow.
Please note that if you decide to take out a new mortgage with a new lender, you will need to pass affordability checks.
It can also check your credit file to see if you have repaid previous debts.
You may also need to provide documents such as utility bills, proof of benefits, your last three months’ pay slips, passports and bank statements.
It is possible to avoid new affordability checks by taking out a new mortgage with your existing lender, provided you do not want to borrow more or extend your term.
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