Lenders have reacted to the Bank of England’s decision to cut interest rates to a new historic low of 0.25 per cent, by passing on the same reduction to borrowers.
Soon after the news came in, Coventry for Intermediaries stated it will replicate the base rate cut in full to all its variable rate mortgage borrowers.
Barclays responded by stating customers with tracker mortgages and those on standard variable rates will see their rates match the cut.
A spokesperson for Lloyds Banking Group said the base rate is only one of a number of factors taken into account when reviewing interest rates.
“The reduction will form part of the ongoing rate reviews across our mortgage and savings ranges, including the Halifax Standard Variable Rate and the Homeowner Variable Rates in Halifax and Lloyds Bank,” they stated. “All variable rate mortgage and savings products that track the base rate will be reduced by 0.25 per cent from September.”
Santander said it will pass on the reduction to standard variable rates on mortgages in full, so from September it will stand at 4.49 per cent. “All mortgage products linked to base rate will move in line with the reduction,” it noted.
Existing Natwest customers with fixed rate products will not see a change in their rate during their fixed rate period, the bank stated. “We are currently reviewing whether we will make any changes to variable rate products and will provide an update in the near future.”
Hinckley & Rugby Building Society stated rates contractually tied to the base rate will reduce by the full 0.25 per cent, while other variable mortgage rates remain under review whilst the wider mortgage market reacts.
Dudley Building Society’s chief executive Jeremy Wood said he expects tracker rates to change as a result of the reduction, along with some “further modest reductions” to other rates in the coming weeks and months.
The Nottingham also intends to reduce mortgage rates for customers on base rate tracker products from the start of next month.
Keith Barber, director of business development at the National Counties Building Society and Family Building Society, said the move was widely expected and the swap rates used for pricing fixed rates had already moved down in the aftermath of the Brexit vote, rather than waiting for today’s announcement.
“I’d expect lenders to be refreshing their product ranges over the coming weeks,” he added.
Mark Harris, chief executive of broker SPF Private Clients, commented it is important lenders immediately pass on the full benefit of the cut to those on tracker-rate mortgages and those on products linked to their lender’s standard variable rate.
“Swap rates are at all-time lows and we expect to see even more competitive fixed rates in coming days,” he said.
“It is already possible to fix for two years at less than 1 per cent and for five years at less than 2 per cent. These are astonishingly-low rates but the could go cheaper still. Lenders are keen to lend and will need to be competitive in terms of the rates they offer in order to attract new business.”
Islay Robinson, chief executive at Enness Private Clients, said he wouldn’t expect to see huge changes in advertised rates, as most lenders have already priced in an interest rate cut.
“Of course, those who are already on a tracker product will see the benefits straight away and, in some cases, their monthly payments will become significantly cheaper. For instance, if you had a £200,000 tracker mortgage on an interest only basis, your monthly payments pre-cut would have been £416 - post-cut, this will drop to £375.”
Simon Gammon, managing partner at Knight Frank Finance, said that as August is traditionally a quieter month there should be time for the market to adjust before activity picks up in September.
In July, the Monetary Policy Committee’s defied expectations by keeping the base rate at 0.5 per cent, with just one member, Gertjan Vlieghe, voting to cut interest rates to a widely-expected 0.25 per cent.
Many in the market supported the decision to hold off until longer-term Brexit impacts become clearer, while others suggested this meant August’s policy measures would not take the form of a rate cut.
Analysis from Legal & General Mortgage Club yesterday (3 August) showed fixed rate mortgages have decreased by an average of 2.5 per cent since 2010, despite the BoE’s base rate remaining steady.
Average monthly fixed rates have fallen by 2.23 per cent for two-year fixed mortgages, while rates on five-year fixed loans have also seen a consistent decrease - falling close to 3 per cent - despite interest rates being stuck at 0.5 per cent since 2009.
L&G Mortgage Club’s director Jeremy Duncombe, said while today’s move is significant, it is unlikely to have much impact on current fixed rates for mortgages.
The Council of Mortgage Lenders pointed out that whether or not borrower will see the ripple effect of a rate change also depends on the type of mortgage.
| The split of regulated, owner-occupied stock | |
| Fixed 46% | equates to in excess of 3.5 million loans |
| Tracker 20% | equates to in excess of 1.5 million loans |
| SVR 29% | equates to in excess of 2.2 million loans |
| Discount 1% | equates to in under 100,000 loans |
| Other/Unknown 5% | equates to around 400,000 loans |
The CML data also showed the average outstanding mortgage was £116,000 at end of the first quarter, with the average outstanding mortgage rate in June was 2.89 per cent.
peter.walker@ft.com
