Relief for Borrowers as Mortgage Providers Lower Rates Amid Price War

A woman walks past property details displayed in the window of an estate agent in Camden, London, on June 3, 2014. Oli Scarff/Getty Images

The biggest UK mortgage lenders have been reducing the cost of fixed-rate deals since the beginning of the new year, amid an ongoing mortgage price war.

The latest banks to announce cuts to the offered home loan deals by up to 0.82 percentage points are Barclays and Santander.

Barclays is now offering a two-year fix at 4.17 percent, while Santander has set a five-year fixed deal at 3.89 percent.

According to the data analysis firm MoneyFacts, average mortgage rates on the overall two and five-year fixed rate deals have gone down for a fifth consecutive month.

In the period between the start of December last year and the beginning of this month, the overall average two and five-year fixed rates fell to 5.93 percent and 5.55 percent, respectively.

This comes as good news for homeowners and those planning to take on a mortgage deal this year. Moneyfacts reported that the last time the fixed-rate deals were below 6 percent was in June 2023.

“There are big expectations for fixed mortgage rates to fall in the coming weeks, so some borrowers may choose to wait patiently for the right time to change their deal or buy their first home,” said finance expert at Moneyfacts, Rachel Springfall.

Mortgage cost drop could be attributed to market expectations of a lower base rate this year, which is set by the Bank of England (BoE).

In December, the BoE voted to keep the base rate at 5.25 percent for a third time in a row, following a period of 14 consecutive raises.

“We’ve now had quite a big change in market interest rates in recent months, so that the cost of mortgages is coming down,” said the BoE Governor Andrew Bailey.

He was speaking to a group of MPs on Wednesday, when he said he would like to see rental inflation, currently at six percent, go down.

“I really hope that’ll come down and lower interest rates obviously help that as well,” Mr. Bailey added.

Promising Signs

More than 30 lenders have already announced cuts to borrowing costs, including Halifax and HSBC.

Halifax introduced a lower two-year fixed deal, down by 0.83 percentage points. HSBC rates on the residential mortgage range were reduced by up to 1 percent.

Moneyfacts pointed out that consumers would be “pleased to see a big uplift in choice, as there was a rise of 200 residential mortgages month-on-month.”

“A rise in choice and cheaper mortgage rates are promising signs for those looking to refinance this year,” said Ms. Springall.

The Co-operative Bank is currently leading in offering the lowest two-year and three-year fixed rate, according to Moneyfacts.

Remortgage borrowers hunting for a five-year initial fixed term are advised to check offers by Santander, a leader in this market segment, followed by the Co-op Bank.

An increase in product choice and lower mortgage rates is beneficial for borrowers, said Ms. Springall.

She added that if borrowers can stretch their deposit to 10 percent, they will find “greater choice and cheaper rates.”

“Consumers would be wise to seek advice to assess the latest offers based on true cost and not be swayed by a headline-grabbing rate,” she added.

News of lower mortgage costs announced by lenders comes amid relatively high mortgage rates overall, and in the middle of a cost-of-living crisis.

As a result, Britons are more likely to struggle with higher mortgage payments and be deterred from getting on the housing ladder.

Last week, the chairman of NatWest bank, Sir Howard Davies, said that it wasn’t “that difficult” to get on the housing ladder.

Reacting to this, Chancellor Jeremy Hunt said: “I don’t understand how he could have said that. I think people are finding it very difficult at the moment.”