A handful of mainstream mortgage lenders have cut their rates today by as much as 1.00 percentage point ahead of the Bank of England's base rate hike next week.
The latest cuts by Halifax, Virgin Money and Nationwide follow a trend of rate reductions over the past month and a half, with sub-5 per cent rates first beginning to emerge back in mid-November.
After the Bank of England’s smaller-than-expected base rate hike at the beginning of last month, lenders began lowering their mortgage interest rates as confidence returned to the market and swap rates - a leading indicator for mortgage rates - began to settle.
Fixed rate deals are likely to continue on their current downwards trajectory.Sarah Coles, Hargreaves LansdownHalifax’s latest rate cuts, set to come into effect today (December 9), see it make cuts of up to 1.01 percentage points. It is now offering a five-year fixed rate of 4.5 per cent.
The cuts arrive as Virgin Money launches a new five-year fixed rate at 4.64 per cent.
While Virgin’s new deal is for borrowers with a 15 per cent deposit or more, Halifax’s 4.5 per cent rate requires borrowers to have saved up a 40 per cent deposit.
Average two-year fixed mortgage rates currently sit at 5.84 per cent, while average five-year fixed mortgage deals sit at 5.67 per cent, according to Moneyfacts.
Virgin’s changes, which also came into effect today, saw existing residential five and 10-year fixed rates reduced by up to 0.31 percentage points, while buy-to-let five-year fixed rates were cut by more than double this amount (0.71 per cent).
Meanwhile, Nationwide has reduced selected fixed rates for new and existing borrowers across its two, three and five-year products by up to 0.30 percentage points.
Harmony Financial Services director, Imran Hussain, said it was great to see more lenders follow Natwest, which cut its residential rates by up to 0.55 percentage points earlier this week.
"It's a positive step in the right direction for home movers, as well as first-time buyers, and those looking to remortgage," said Hussain.
"It's also great to see more competitiveness with regards to rates compared to a couple of months ago when all rates were heading north."
'Mortgage rates could fall further'
The cuts precursor another Bank of England rate rise next week, which is expected to be 0.5 percentage points, taking the base rate to 3.5 per cent.
Experts have said the next base rate rise, much like the last, is likely already priced in following the market chaos which ensued in October after former prime minister Liz Truss’ explosive ‘mini’ Budget.
“For those looking for a fixed rate mortgage, if we get the 0.5 percentage point rise the market is expecting, there’s every chance that it has already been priced into the market,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
“So instead of encouraging rate hikes, those fixed rate deals are likely to continue on their current downwards trajectory.”
Coles said the mortgage market is being driven by rate expectations further down the track, which have “fallen dramatically” since the surge that was powered by the 'mini' Budge.
She continued: “As a result, the market now expects the base rate to peak at somewhere around 4.5 per cent or 4.75 per cent, before falling back as the recession takes hold. It means it doesn’t need to price fixed rates so high. Mortgage rates could fall further from here, but it’s not guaranteed.”
Mortgage approvals have also been falling, which according to some brokers has put pressure on lenders to offer more competitive deals in an effort to avoid sales dropping off in the lead up to Christmas.
In October, mortgage approvals fell 11 per cent, their lowest level since June 2020 when the UK was battling with Covid-19.
Approvals for house purchases are an indicator of future borrowing. They fell from 66,000 in September to 59,000 in October.
Net borrowing of mortgage debt by individuals also decreased in October, from £5.9bn to £4.0bn, according to the Bank of England’s latest money and credit report.
Adviser at firm Ash-Ridge, Jane King, said at the end of last month a handful of lenders had told her “that purchase applications are almost non-existent so they need to start getting competitive again”.
ruby.hinchliffe@ft.com
