Mortgage lenders are continuing to cut their interest rates, with more deals falling close to 4 per cent despite a predicted base rate hike tomorrow.
Today (February 1), high street lender Virgin Money launched an exclusive five-year fixed mortgage with a 4.17 per cent rate, cutting the product's previous rate by 0.11 percentage points.
The bank also launched a 10-year fix at 3.99 per cent yesterday (January 31), which joined Halifax's 10-year fix at the same rate.
But unlike Halifax's product, which is just for those looking to remortgage, Virgin Money's 3.99 per cent is also available for those purchasing their first or second home.
During the course of January, mortgage interest rates continued to fall - with many brokers anticipating 4 per cent two and five-year deals in just a matter of weeks.
If you think back to October, forecasts were 6 per cent and above. Lenders have been repricing weekly and actually need to lend, that’s business.Rachel Dixon, Leamington Spa-based brokerThe average five-year fix has fallen by 0.43 percentage points, while the average two-year fix has fallen by 0.34 percentage points, according to Moneyfacts.
Other high street lenders to cut their rates this week include NatWest, which shaved off up to 0.24 percentage points, as well as HSBC and TSB's lesser 0.15 percentage point cuts.
The Bank of England is set to raise the base rate for the tenth consecutive time tomorrow, with economists expecting it to climb by 0.5 percentage points, to 4 per cent.
Sales manager at mortgage broker MB Associates, Phil Leivesley, reckons the base rate will rise by a lesser 0.25 percentage points.
Despite the rise, Leivesley said it is plausible that the cost of fixed rates will continue to reduce.
"Lenders appear to be cutting their margins in a bid to compete with each other and bring in business," he explained,
"Whilst it’s perhaps too soon to talk about a ‘price war’, we can expect lenders to continue to want to capture market share."
Some brokers have already signalled a price war among lenders, as more high street names edge close to 4 per cent deals.
"Tracker rates will of course rise with any base rate increases, but I’m not convinced borrowers already on, or taking out, tracker products will have much to worry about as I don’t expect to see too many more increases to the base rate after Thursday, if at all," said Leivesley.
The [BoE] rise is likely already factored in - it’s been spoken about for weeks now.David Gissing, London Mortgage PartnersTracker rates, unlike fixed rates, follow the base rate - meaning they can go up and down in line with changes to the base rate.
Brokers have told FTAdviser they have been recommending tracker rates due to the falling rate environment and uncertainty around when rates might stabilise.
"My anticipation is that lenders will retain the margin above base rate in their tracker products as the base rate increases. Whilst the gap between tracker and fixed rate products is closing, tracker rates are going to remain a tempting option for less risk averse borrowers," Leivesley concluded.
Mortgage sales head at London Mortgage Partners, David Gissing, reckons trackers will reach a parallel with fixed over the next few months.
But he added: "Provided swap rates keep trending downward, fixed rates should also reduce in line. The [BoE] rise is likely already factored in - it’s been spoken about for weeks now."
SONIA swap rates
| Current | 30 Jan 2023 | 03 Jan 2023 | 31 Jan 2022 | |
|---|---|---|---|---|
| 1 Year | 4.235% | 4.241% | 4.323% | 1.008% |
| 2 Year | 3.979% | 3.997% | 4.319% | 1.302% |
| 3 Year | 3.772% | 3.789% | 4.180% | 1.369% |
| 5 Year | 3.553% | 3.566% | 3.954% | 1.321% |
| 7 Year | 3.414% | 3.421% | 3.774% | 1.265% |
| 10 Year | 3.337% | 3.337% | 3.651% | 1.224% |
| 15 Year | 3.305% | 3.298% | 3.574% | 1.183% |
| 30 Year | 3.164% | 3.144% | 3.384% | 1.066% |
Source: Chatham Financial [Updated 31 Jan 2023 | 23:30 GMT]
Leamington Spa-based broker Rachel Dixon is also convinced that lenders' rates have already factored in the up coming base rate rise.
"If you think back to October, forecasts were 6 per cent and above. Lenders have been repricing weekly and actually need to lend, that’s business," she explained.
"It may be gradual and small but hopefully in the right direction downwards. I’m still of the believe that we will see a more competitive market by the summer."
Dixon said she is currently really busy with new enquiries. "We just need confidence to return and more people come on the market ."
In December, mortgage approvals fell for a fourth consecutive month in December 2022, reaching the lowest level seen since May 2020, during the first lockdown.
ruby.hinchliffe@ft.com
